Tickers in this Article: AFG, PER, HRL, MOLX, GPS
Have you ever noticed the number of people on Forbes' annual list of richest Americans that hold a large ownership stake in a public company? It's not a coincidence that the number is high. Recently I did a stock screen at Yahoo Finance looking for companies with high insider ownership and reasonable profitability. Parameters included insider ownership of 25% or more, a price-to-sales ratio of between 0.5 and 1.5, average daily volume of 500,000 or more, a positive return on equity and free cash flow greater than $100 million.

The screen produced a list of 19 companies, and from those I selected the second through fifth stocks with the lowest price-to-sales ratio. The lowest was Gap (NYSE:GPS), and I've already beaten this horse to death. It's time to focus on new possibilities. (Keeping tabs on company executives can provide clues about where a stock is headed; learn more in What Exactly Is Insider Trading? and Delving Into Insider Investments.)

American Financial Group (NYSE:AFG)
Billionaire Carl Lindner Jr., along with his sons, operates this Cincinnati-based property and casualty insurer. Listed 205th among the 2008 Forbes Richest Americans, Lindner started out in the dairy business back in the 1940s. He diversified into financial services in 1959 by investing in the savings and loans business; then in 1971 with American Financial Group. Today the Lindners own 29% of the company which, in addition to its main insurance operation, owns several high-end resorts in the United States as well as a significant investment portfolio. Focused on the long-term, the company is sitting on almost $13 in cash per share and trading at 0.55 times sales. The stock is off 29% in the last 52 weeks. There's a lot to like here.

Perot Systems (NYSE:PER)
Who doesn't know Ross Perot? While his legacy might be his two failed attempts at the presidency, in business circles he will surely go down as one of the most successful entrepreneurs that Texas has ever produced. First he built Electronic Data Systems into a powerhouse, selling it to General Motors in 1984. Then he started Perot Systems four years later, and he now owns 25.8% of the stock and serves as chairman emeritus. Currently 68th on the Forbes list, I'm sure he will move up in 2009, thanks to a rising stock price.

Hormel Foods (NYSE:HRL)
The maker of Spam, in my opinion one of the most indigestible foods on the planet, has a good thing going despite recent worries about how it will fare in the current economy. The Hormel Foundation owns 47.4% of the common stock, worth approximately $1.9 billion at current prices. If the stock were still in the hands of the Hormel family, they would be 246th on the Forbes list, give or take a few spots. Jay Hormel, the company's founder, created the foundation in 1941 to do good works in Minnesota, where it's located, transferring most of the family's holdings to the foundation by the 1950s. Like the Hershey Trust, you can bet management takes its responsibilities more seriously.

Molex (Nasdaq:MOLX)
It last made the Forbes list in 2006, when John Krehbiel Jr. was 374th. A sagging stock price has reduced the Krehbiel family to multi-millionaire status. Regardless, the family still has a huge stake in the Illinois manufacturer of optical and electrical connectors. The stock is down 45% in the last 52 weeks, due in part to lower earnings. Nonetheless, sales continue to grow and losses are nowhere in sight.

Bottom Line
Warren Buffett's Berkshire Hathaway is a classic example of how insider ownership is supposed to function. When managed properly, a significant ownership position held by a family or individual can be a rewarding experience for all shareholders, not just those in control.

Predated trades at regular intervals can instill confidence, not fear, for investors. Read more in Insider Selling Isn't Always A Bad Sign.

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