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Top-Rated Stocks That Get Low Grades

The flipside to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests.

We've already looked at low-rated stocks that may deserve investor support, having earned high Corporate Governance Quotients (CGQ) from Institutional Shareholder Services -- the big name in corporate proxies. But today we'll look at otherwise top-notch firms that may do their shareholders a disservice.

ISS measures how well a company performs in as many as 63 categories, covering four broad areas. Moreover, each company is scored relative to its market index and its industry group. Some evidence supports the notion that companies with weaker governance have higher risk, decreased profitability, and lower valuations. We'll be looking at stocks that Motley Fool CAPS investors have marked to outperform the market, but which sport below-average CGQ scores, either in their Index group or among industry peers.


CAPS Rating

Index CGQ Ranking*

Industry CGQ Ranking*

Apple (Nasdaq: AAPL  )




Berkshire Hathaway (NYSE: BRK-A  )




Cisco (Nasdaq: CSCO  )




Finisar (Nasdaq: FNSR  )




Mosaic (NYSE: MOS  )




Source: Yahoo! Finance, Motley Fool CAPS.
*Relative placement when compared to companies in index or industry. Higher is better.

Investors should consider many factors before buying or selling a stock, including how well it treats shareholders. Consider these rankings one way to gauge how these businesses stack up against one another, relative to their shareholder policies.

An Apple a day
With Apple poised to introduce its iPhone into more than 70 international markets, it is directly competing against Nokia (NYSE: NOK  ) , the world's leading cell phone maker. That presents it with both opportunities and challenges. With a higher price tag in Europe than here in the U.S., it seems there will be plenty of domestic demand for this next-generation device, partly from foreigners coming to the U.S. to buy the phone.

Certain investors like CAPS player Cjbrice see Apple becoming the brand of an age, keeping admirers and rivals waiting to see what it does next:

Apple stock for the most part has grown only stronger over the last few years. It has had its dips, but slow and steady wins the race. Apple has made huge strides in the technology department. With more young people convincing parents,aunts, uncles and even some grandparents that Apple(Mac) is the way to go; Apple is slowly becoming a more universal brand for any age. With the approach of the new iPhone 3G release, Apple is directly competing with other PDA brands.

An array of options
Fertilizer maker Mosaic sees potash and potassium sulfate as the growth story of the future, so it wants to sell off its nitrogen fertilizer division in an effort to expand its core operations. It wants to reach 5.1 million metric tons of potash capacity over the next 12 years. Will Mosaic remain a lush investment without nitrogen to fertilize its growth? Probably, since the nitrogen division contributes less than 2% to revenue, and an even smaller percentage to operating profits. Perhaps PotashCorp (NYSE: POT  ) would be a buyer -- it derives more than a third of its revenue from nitrogen.

CAPS investor GR8ness sees domestic policy decisions and international growth opportunities pushing Mosaic higher:

[Mosaic] is the most profitable company out of the entire group of agricultural chemical stocks. Its growth has exceeded the likes of the competitors [Potash] and [Agrium]. In a recent deal on April 16th the company reached an agreement with china that will see about one million tons of Potash at $576 a ton! With new high prices on the agricultural chemicals the outlook should be great for the upcoming quarters. Two major macroeconomic factors support the continuing prices increases of the Ag. Chemicals. The U.S. mandates on Ethanol and a global food shortage.

A Foolish quotient
Many factors determine whether a stock is a buy or sell. Do corporate governance policies enter into your equation? Head over to CAPS today and share your thoughts on these stocks or any others with our community of investor analysts.

Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

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Related Tickers

5/31/2016 4:00 PM
AAPL $99.86 Down -0.49 -0.49%
Apple CAPS Rating: ****
MOS $25.23 Down -0.19 -0.73%
The Mosaic Company CAPS Rating: ****
BRK-A $211695.00 Down -2608.00 -1.22%
Berkshire Hathaway… CAPS Rating: *****
CSCO $29.05 Up +0.13 +0.45%
Cisco Systems CAPS Rating: ****
FNSR $16.82 Up +0.31 +1.88%
Finisar Corp CAPS Rating: ***
NOK $5.70 Up +0.10 +1.79%
Nokia CAPS Rating: **
POT $16.33 Down -0.24 -1.45%
PotashCorp CAPS Rating: *****