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 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 look 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 (out of 5)

Index CGQ Ranking*

Industry CGQ Ranking*

CVS Caremark (NYSE: CVS  )

****

96.5%

100%

DuPont (NYSE: DD  )

****

55.6%

88.8%

ExxonMobil (NYSE: XOM  )

****

67%

96.6%

Pfizer (NYSE: PFE  )

****

70.5%

98.8%

Stillwater Mining (NYSE: SWC  )

*****

68.9%

54.5%

Sources: Yahoo! Finance and 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 success in investing, there are many factors an investor should consider, and how well a company 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
One of the keys to investing in a pharmaceutical is its pipeline of drugs in development to try to offset any blockbusters that might go off-patent soon. Pfizer is set to begin losing full protection on its giant cholesterol-lowering drug Lipitor in March, with other patents expiring in 2011, but it has faced generic competition from Zocor and Pravachol since 2006. For the latest quarter, sales fell by 10%, though much of that was because of unfavorable currency exchange rates.

Still, Pfizer has the largest pipeline of any pharmaceutical, and it invests more than $7 billion annually in research and development. Its pending merger with Wyeth (NYSE: WYE  ) will also bring the drugs that company holds into the fold, including Effexor, Prevnar, and Enbrel, which together represented nearly half of Wyeth's $4.7 billion in pharmaceutical revenues in the latest quarter.

There might be one other issue. CAPS member DanteSparda writes that Pfizer will overcome the $2.3 billion fine the federal government imposed.

Can't say I'm too thrilled with the prospect of a $2.3 billion fine for shady quid pro quo business practices. But nevertheless people need drugs and Pfizer has the line up. Hopefully, the drug pipeline from Wyeth will make up for expiring patents from Lipitor in 2011. Let's just hope they don't try to market the next Thalidomide or something.

Miners need to dig deeper
The health of the automotive industry is a key consideration for Stillwater Mining, whose palladium and platinum reserves are used for components of cars, such as catalytic converters. Ford (NYSE: F  ) and General Motors accounted for 43% of Stillwater's revenues last year, so when GM declared bankruptcy in June and canceled its contract with Stillwater, Stillwater's shares plummeted.

After the Cash for Clunkers program spurred demand, shares rebounded, perhaps because of hopes that the industry was on the road to recovery. CAPS member HenriNostradamus noted the momentum for the industry, but investors still need to be mindful that car dealers will now suffer slack sales. The rally it also generated in palladium's price -- autos account for more than half of the world's demand for palladium -- may be short-lived.

Stillwater's shares jumped 37% over the past three months and almost 80% in the past six months. With GM refusing to budge on reinstating the palladium contract and the auto industry still stuck in neutral, there's a good chance Stillwater Mining will find the waters of growth very still indeed.

Agree? Feel free to share your point of view in the comments box below.

A Foolish quotient
Many factors go into whether a stock is a buy or a sell, but are corporate governance policies part of 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.

Pfizer is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services 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. The Motley Fool's disclosure policy is a capital idea.


Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 07, 2009, at 10:08 AM, MTPd wrote:

    SWC - Additional points to consider are the increasing price of metals that SWC is receiving.

    The spot price of palladium is at or above what GM was paying.

    There is also increasing demand for palladium and platinum in China, India, Brazil and other countries.

    Palladium holdings in ETF's are also at record levels. This all bodes well for SWC.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1000964, ~/Articles/ArticleHandler.aspx, 10/20/2014 4:43:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement