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Follow the CEO to Higher Returns

February 05, 2014 | About:

In a recently published study by two economists, Ulf Von Lilienfeld-Toal and Stefan Ruenzi, to determine whether ownership of a company by its CEO can impact subsequent returns, it was shown that stocks that had high CEO ownership (10% or more) outperformed their benchmark by 5% annually between 98 and 2010. This is an incredible outperformance by any standard and would make many money managers envious. The research is robust and the results are valid even after controlling for possible factors like company size and stock momentum. The researchers explain this outperformance by better capital allocation discipline from the CEOs whose interest is aligned with that of shareholders. You can read more about this research here.

Using the GuruFocus screener, I tried to identify companies which would fit this description. I built a screen of companies that have insider ownership of at least 10%. To be more selective, I also chose companies that have at least two Gurus currently holding and which have seen the CEO significantly buying over the past 6 months.

You can see the results of the screen here.

Continental Resources Inc. (NYSE:CLR) - CLR is a crude oil and natural gas exploration and production company with operations in the North, South and East regions of the United States. The Company focuses its exploration activities in large new or developing plays that provide it the opportunity to acquire undeveloped acreage positions for future drilling operations. Current Guru holders include: Ke Heebner, Mario Gabelli (Trades, Portfolio), Ray dali and Paul tudor Jones. The CEO bought 40m$ worth of shares less than 2 months ago.

Clean Energy Fuels Corporation (NASDAQ:CLNE) - CLNE sells natural gas fueling solutions to its customers mainly in the U.S. and Canada. The company provides natural gas solutions for vehicle fleets mainly in the U.S. and Canada. It also builds fueling stations and helps its customers acquire and finance natural gas vehicles and obtain local, state and federal clean air financial and tax incentives. It designs, builds, finances and operates fueling stations and supplies its customers with CNG and LNG. Current guru owners include Steven Cohen (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Ronald Muhlenkamp (Trades, Portfolio). The CEO bought 127,000 shares at $12.69 on Sept. 12, 2013.

Magnum Hunter Resources Corp (MHR) - MHR is an oil and gas company engaged in the exploration for and the exploitation, acquisition, development and production of crude oil, natural gas and natural gas liquids resources in the U.S. and Canada. It is active in three of the prolific unconventional shale resource plays in North America, mainly, the Marcellus Shale in West Virginia and Ohio; the Utica Shale in southeastern Ohio and western West Virginia; and the Williston Basin/Bakken Shale in North Dakota and Saskatchewan, Canada. Gurus who have been buying recently include Georges Soros, John Burbank and Steve Cohen. The CEO bought 30,000 shares at $6 on the Nov. 26, 2013.

Unifirst Corporation (NYSE:UNF) - UNF is a provider of workplace uniforms and protective work wear clothing in the U.S. It has operating segments: U.S. and Canadian Rental and Cleaning, Manufacturing (MFG), Specialty Garments Rental and Cleaning (Specialty Garments), First Aid and Corporate. Gurus owning the stock include Chuck Royce (Trades, Portfolio) and Jean-Marie Eveillard (Trades, Portfolio). The CEO bought 8242 shares at $91 on Oct. 2, 2013.

I believe these four companies are worth spending some time on, the interests of management and shareholders are clearly aligned, the potential is somewhat validated by smart money owning the stock, and the recent CEO purchases indicate the timing is not necessarily bad to own them.

  • CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
  • Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
  • Double Buys:: Companies that both Gurus and Insiders are buying
  • Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.

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Rating: 4.3/5 (3 votes)


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