Looking for stocks that have strong profitability and the support of company insiders? Here are some ideas to get you started.
Profitability margins such as gross margin are helpful to gauge how much profits a company is taking from its revenues. Specifically, gross margin is the profit after deducting "cost of goods sold," which includes inventory. Therefore companies with higher gross margins are more profitable and have a greater control of their costs.
For companies that sell physical inventory, gross margin is a very important measure because cost of goods sold is usually the largest expense on the income statement.
Investment ideas
We ran a screen for stocks with high profitability by searching for those that are seeing consistent increases in gross margin over the last four years, indicating that the stocks are keeping a greater portion of revenue as profits.
We then screened these stocks for those with significant net insider buying over the last six months, which indicates that company insiders such as upper management believe in the company's outlook.
Do you think these insiders are calling it right on their companies?
(Click here to access free, interactive tools to analyze these ideas.)
1. Solar Capital (Nasdaq: SLRC ) : Solar Capital Ltd. is a business development company specializing in investments in leveraged companies, including middle market companies. Gross profit margins increased from 74.88% to 81.86% during the first time interval (12 months ending 2008-12-31 vs. 10 months ending 2007-12-31). For the second time interval, gross margins increased from 81.86% to 84.74% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 84.74% to 85.32% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 115,000 shares, which represents about 0.41% of the company's 27.91M share float.
2. Genomic Health (Nasdaq: GHDX ) : Focuses on the development and global commercialization of genomic-based clinical laboratory services that analyze the underlying biology of cancer allowing physicians and patients to make individualized treatment decisions. Gross profit margins increased from 72.93% to 75.41% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 75.41% to 78.23% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 78.23% to 80.56% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 554,745 shares, which represents about 2.06% of the company's 26.92M share float.
3. USA Mobility (Nasdaq: USMO ) : Provides wireless communications solutions to the health care, government, enterprise, and emergency response sectors in the United States. Gross profit margins increased from 62.75% to 64.28% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 64.28% to 66.9% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 66.9% to 67.08% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 6,743 shares, which represents about 0.04% of the company's 18.59M share float.
4. ITT Educational Services (NYSE: ESI ) : Offers postsecondary-degree programs in the U.S. that provide diplomas as well as associate's, bachelor's, and master's degrees. Gross profit margins increased from 58.76% to 62.2% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 62.2% to 65.9% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 65.9% to 66.31% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 374,000 shares, which represents about 2.08% of the company's 17.96M share float.
5. Lincoln Educational Services (Nasdaq: LINC ) : Provides career-oriented post-secondary education services in the United States. Gross profit margins increased from 57.44% to 59.27% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 59.27% to 61.76% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 61.76% to 62.51% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 291,384 shares, which represents about 1.38% of the company's 21.18M share float.
6. Level 3 Communications (Nasdaq: LVLT ) : Engages in the communications business in North America and Europe. Gross profit margins increased from 57.06% to 57.94% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 57.94% to 58.4% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 58.4% to 59.19% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 123,580 shares, which represents about 0.08% of the company's 152.61M share float.
7. Neoprobe (Nasdaq: NEOP ) : Engages in the development and commercialization of surgical and diagnostic oncology products that enhance patient treatment by meeting the critical decision making needs of physicians in the United States and internationally. Gross profit margins increased from 55.34% to 62.45% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 62.45% to 67.02% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 67.02% to 70% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 100,320 shares, which represents about 0.12% of the company's 82.84M share float.
8. STAAR Surgical (Nasdaq: STAA ) : Designs, develops, manufactures, and sells implantable lenses for the cataracts and refractive surgery. Gross profit margins increased from 54.62% to 58.43% during the first time interval (12 months ending 2009-01-02 vs. 12 months ending 2007-12-28). For the second time interval, gross margins increased from 58.43% to 61.34% (12 months ending 2010-01-01 vs. 12 months ending 2009-01-02). And for the final time interval, gross margins increased from 61.34% to 63.83% (12 months ending 2010-12-31 vs. 12 months ending 2010-01-01).
Over the last six months, insiders were net buyers of 11,927 shares, which represents about 0.05% of the company's 25.37M share float.
9. Aeroflex Holding Corp. (NYSE: ARX ) : Designs, engineers, manufactures, and sells microelectronics, and test solution and measurement equipment in the United States, Europe, the Middle East, Asia, and Australia. Gross profit margins increased from 41.57% to 48.06% during the first time interval (12 months ending 2009-06-30 vs. 12 months ending 2008-06-30). For the second time interval, gross margins increased from 48.06% to 52.36% (12 months ending 2010-06-30 vs. 12 months ending 2009-06-30). And for the final time interval, gross margins increased from 52.36% to 53.76% (12 months ending 2011-06-30 vs. 12 months ending 2010-06-30).
Over the last six months, insiders were net buyers of 23,795 shares, which represents about 0.03% of the company's 69.46M share float.
10. Opko Health (NYSE: OPK ) : Engages in the discovery, development, and commercialization of novel and proprietary technologies primarily in the United States, Chile, and Mexico. Gross profit margins increased from 4.71% to 9.32% during the first time interval (12 months ending 2008-12-31 vs. 12 months ending 2007-12-31). For the second time interval, gross margins increased from 9.32% to 27.22% (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). And for the final time interval, gross margins increased from 27.22% to 44.41% (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).
Over the last six months, insiders were net buyers of 6,854,500 shares, which represents about 5.19% of the company's 132.12M share float.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
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List compiled by Eben Esterhuizen, CFA. Kapitall's Alexander Crawford and Eben Esterhuizen do not own any of the shares mentioned above. Insider data sourced from Yahoo! Finance. Gross margin data from Google Finance.
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