Top-Rated Stocks That Treat Shareholders Right

The flip side 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 the stocks a rating that it calls the 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 look 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

(Max 5)

Index CGQ Ranking*

Industry CGQ Ranking*

Verizon (NYSE: VZ  )

****

64.8%

95.9%

Boeing (NYSE: BA  )

****

64.8%

93.8%

Merck (NYSE: MRK  )

****

66.7%

98.3%

E*Trade (Nasdaq: ETFC  )

****

62.1%

92%

Hewlett-Packard (NYSE: HPQ  )

****

51.5%

93.3%

Sources: Yahoo! Finance, Motley Fool CAPS; *relative placement when compared with 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 to consider in determining 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
The sleek BlackBerry Storm by Research In Motion (Nasdaq: RIMM  ) , the company's first-ever touch-screen phone being launched with Verizon, is garnering headlines these days as a possible iPhone killer. However, CAPS member Polarimetric believes that Verizon's fiber-optic service FiOS will be the longer-term winner for the phone company.

Verizon has really gotten their act together lately. They have no reason to be near a 52-week low. FiOS is huge and almost single-handedly responsible for the popularization of fiber optic technology. Fiber optic technology is increasing in popularity among those who need higher speed, and the prices are very decent as well. I believe that FiOS will continue to be a success moving forward, and they may pick up a few Sprint customers while Sprint implodes, too. They have been extremely aggressive in advertising of late and I think it will benefit them overall.

Discount broker E*Trade Financial has managed to recover operationally from its missteps last year, though its stock price remains flat. CAPS member nightbrightener finds the broker to be poised to pop in the short term, though longer-term questions remain.

I have to say this pick may be more of a coin toss than a rational decision. ... And with Fidelity and others transforming from mutual fund based broker platforms to independent discount brokers with the full toolkits of research and advertising they already have in place it will be a tough playground for Etrade. I think they have responded well to some bad mistakes in the past and do think they have significant upside especially midterm. But I am very leary about their long term viability or if they will get squeezed between former boutique brokers with discounted rates and budget brokers in the years to come.

With Boeing and Northrop Grumman (NYSE: NOC  ) playing dodge ball over rights to win contracts for the Air Force's aerial refueling tanker, CAPS member zoagra thinks the plane manufacturer will enjoy sustained demand from both government and commercial interests.

The machinists' strike has provided the company's suppliers an opportunity to fix their production problems and will probably be resolved before the end of the year. Sustained demand for both commercial and defense systems should drive revenues and profits at the company for several years under most economic scenarios.

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 from your fellow investors -- all from a stock's CAPS page.

In the coming weeks, Fool co-founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. The service, which just launched, will rely heavily on proprietary CAPS "community intelligence" data to establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

Fool contributor Rich Duprey owns shares of Merck but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy. Try any of our Foolish newsletters today, free for 30 days.


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