How a company treats its shareholders is a matter of record. We can read through a company's proxy statement and see how it compensates management, creates its board, and aligns the interests of management with shareholders -- and doling out stock options doesn't cut it.
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 its 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*
|
|
Cisco (Nasdaq: CSCO)
|
****
|
81.9%
|
98.5%
|
|
Qualcomm (Nasdaq: QCOM)
|
****
|
59.6%
|
95.5%
|
|
CVS Caremark (NYSE: CVS)
|
*****
|
68.8%
|
84.4%
|
|
Proctor & Gamble (NYSE: PG)
|
*****
|
52.5%
|
93.8%
|
|
Constellation Energy (NYSE: CEG)
|
****
|
93.3%
|
97.3%
|
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. Whether or not it is a quality company 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.
Follow the leader
Industry segments seem to be taking turns being the bearer of bad tidings -- financials, retail, and now tech spending. According to market analysts, IT spending will suffer miserably over the next few quarters as the plague of economic recession spreads around the globe. That hasn't dampened the confidence of investors who overwhelmingly see Cisco as outperforming the market. Some 95% of All-Star CAPS members see the IT specialist forging ahead, primarily based on the sterling financial underpinnings it has.
TMFDitty sees huge upside potential here as it generates prodigious amounts of free cash flow, has a surfeit of cash on hand, and looks to be remarkably undervalued.
Based on $10.8B trailing free cash flow and 15% projected growth, this one works out to a BOTEV [back of the envelope valuation] of $162 billion. Cisco has roughly 50% upside from its current price.
A chip off the patent block
It wasn't like Qualcomm ever really suffered at the hands of the International Trade Commission after the latter ruled that the company induced cell phone makers to violate the patents of rival chip maker Broadcom (Nasdaq: BRCM). After all, a court had issued an injunction on the ruling so that cell phones containing Qualcomm chips continued to be imported into the U.S. Now an appeals court has overturned the ITC's decision, and the case will go back to the ITC for further review. Nokia (NYSE: NOK) needn't worry that the $2 billion royalty payment it will be making to Qualcomm as part of their 15-year patent deal will be in vain.
It's in part the patents that Qualcomm holds that has CAPS members like zaneinky seeing the chip maker as continuing to lead.
The fact that Qualcomm has a proven technology that is used in almost all cell phones. Plus they continue to win patent infringement case.s
A healthy check-up
CAPS member ichaz finds drugstore chain operator CVS Caremark to be a sophisticated operator that will benefit from the aging population and changes occurring in healthcare.
Most sophisticated retailer in the Drug COT. Have the ability to target specific group of profitable consumers and drive their loyalty and sales. This ability will help drive vendor dollars to them on the OTC side and combining those abilities with PBM and MinuteClinics will have a similar effect with BTC Drug Cos. Also all their tentacles will have them well positioned for an aging population and future Healthcare changes. They are becoming a Healthcare provider as well as retailer.
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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