The flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. There are also top-flight companies that 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 the stocks 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. In this column, we'll be looking at stocks that Motley Fool CAPS investors have marked to outperform the market and that also sport above-average CGQ scores, either in their index group or among industry peers.
|
Company
|
CAPS Rating
(5 max)
|
Index CGQ Ranking*
|
Industry CGQ Ranking*
|
|
ExxonMobil (NYSE: XOM )
|
****
|
77.9%
|
98.1%
|
|
Pfizer (NYSE: PFE )
|
****
|
75.4%
|
99.3%
|
|
SanDisk (Nasdaq: SNDK )
|
****
|
73.8%
|
97.5%
|
|
Automatic Data Processing (NYSE: ADP )
|
*****
|
82.7%
|
98.9%
|
|
Western Refining (NYSE: WNR )
|
****
|
50.7%
|
52.4%
|
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
After 27 years, oil companies are once again permitted to seek federal leases to drill for oil off the Atlantic and Pacific coastlines. Whether the change will have a practical impact is another question, since the Minerals Management Service doesn't have plans to consider new federal leases anytime soon. Yet the symbolic nature of the ban's expiration may eventually allow companies like ExxonMobil or Chevron (NYSE: CVX ) to drill off the more important coast of Florida, which is covered by a separate ban.
Still, CAPS member altonoch likes the potential that ExxonMobil brings to the table:
Lifting of drilling bans offshore US, contracts in Iraq, large amounts of cash, necessity for energy for creation of global infrastructure, excellent management
If pharmaceutical companies can't develop sufficient drugs internally, they can always buy a biotech to boost their all-important drug pipelines. Bristol-Myers Squibb (NYSE: BMY ) , for example, is trying to buy ImClone Systems and its Erbitux cancer drug. Earlier this year, Pfizer bought Encysive Pharmaceuticals to bolster its R&D efforts. CAPS All-Star member TDRH finds Pfizer a compelling value despite its empty pipeline:
Yes the pipleine is dry, yes it was a value trap when I bought it at $23.50, but the 6.9% dividend yield should keep this one from falling further and could preserve capital. Still positive cash flow and AAA rating, does not need to borrow money for operations, still feeding of the cash cows near expiry.
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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