The flipside to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. Conversely, there are top-flight companies that also treat their shareholders with respect.
Institutional Shareholder Services -- the big name in corporate proxies -- 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. It assigns each stock a rating that it calls it Corporate Governance Quotient, or CGQ.
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 and also sport above-average CGQ scores, either in their Index group or among industry peers.
|
Company
|
CAPS Rating
(Max 5)
|
Index CGQ Ranking*
|
Industry CGQ Ranking*
|
|
American Science & Engineering (Nasdaq: ASEI )
|
*****
|
80.7%
|
69.8%
|
|
El Paso (NYSE: EP )
|
****
|
80.5%
|
98.9%
|
|
Nasdaq OMX Group (Nasdaq: NDAQ )
|
*****
|
94.1%
|
87.0%
|
|
Dynamic Materials (Nasdaq: BOOM )
|
*****
|
76.9%
|
67.6%
|
|
GeoEye (Nasdaq: GEOY )
|
*****
|
88.5%
|
79.9%
|
Source: Yahoo! Finance, Motley Fool CAPS. *Relative placement when compared to companies in index or industry. Higher is better.
Although finding good companies and holding them for the long term is one of the greatest secrets to investing, there are many factors that an investor should consider when deciding whether a company is good, and how well it treats shareholders shouldn't be least among them. View these rankings as a way to gauge how these businesses stack up against one another relative to their shareholder policies.
Go to the head of the class
X-ray inspection equipment maker American Science & Engineering might have missed analyst earnings and revenue projections, but a healthy backlog suggests that, like rival L-3 Communications (NYSE: LLL ) , better times are coming. CAPS member BadManNo1 finds AS&E has the right products at the right time:
This company produces cutting-edge counter-terrorism products, has the right connections, and is strategically aligned with the public's outcry for increasing security at our airports and other ports of entry.
Another CAPS member, LogicalBalatro, likes natural gas exploration, production, and transmission play El Paso because he sees its diverse properties as offering safety and stability:
As a company involved in natural gas, I think they have a lot of room to grow. [El Paso] already transports more than 25% of daily natural gas consumption through its pipelines. Not only do they own a lot of pipes, they explore for and produce the stuff, which gives them a wide base of income.
The company has exploration and production programs (E&P) in the U.S. (Safe), Brazil (Sexy), and Egypt (Hot, literally). The sexy and hot markets may not be where the final products end up, but if I'm in the energy business, sexy and hot are two places I'd like to be ...
They have billions in backlog contracts, an increasing dividend, and just reduced a lot of debt last year.
Nasdaq OMX Group has been able to integrate a number of large bourses (like OMX) into its fold and, in the process, has transformed itself from simply a tech-heavy electronic exchange into a multifaceted home for a variety of markets, including options, where, with 17% of the market, it only trails CME Group (NYSE: CME ) and the International Securities Exchange. CAPS member bradford86 finds the exchange to be a good value:
NASDAQ OMX Group, Inc. has acquired a few exchanges and integrated many new companies into its trading platform. It’s growing ridiculously fast and is priced like it’s never going to see the sun. Long term, I see trading in the marketplace ceasing to exist and it becoming mostly electronic and at the same time trading costs coming down. Right now, this is a great play.
A Foolish quotient
Many factors go into whether a stock is a buy or sell, but do corporate governance policies enter into your equation? It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.
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