Top-Rated Stocks That Treat Shareholders Right

Between shareholder-friendly stocks expected to underperform the market, and highfliers that pay little heed to their owners' interests, you'll find 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. ISS assigns these 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 sport above-average CGQ scores, either in their index group or among industry peers, and which Motley Fool CAPS investors have marked to outperform the market.

Company

CAPS Rating (out of 5)

Index CGQ Ranking*

Industry CGQ Ranking*

MedcoHealth Solutions (NYSE: MHS  )

****

79.4%

96.6%

Monsanto (NYSE: MON  )

****

72.5%

96.6%

Stone Energy (NYSE: SGY  )

****

66.2%

77.4%

Vaalco Energy (NYSE: EGY  )

****

69.1%

66.0%

Zix (Nasdaq: ZIXI  )

****

70.9%

73.6%

Source: 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 success in investing, there are many factors an investor should consider. How well a company treats shareholders shouldn't be least among them. View these rankings as one way to gauge how these businesses stack up against one another relative to their shareholder policies.

Go to the head of the class
No need for investors to sit stone-faced: Stone Energy has been on a tear. Over the past six months, the oil and gas E&P player surged on strong, expectations-beating earnings results. Now it's raised its outlook yet again.

Ahead of its third-quarter report in early November, the company says it expects production to hit the top end of its guidance. Net daily production is now forecast to average between 230 million and 235 million cubic feet equivalent. Previously, Stone said it expected a range of 215 million to 235 million cubic feet equivalent.

The Energy sector itself has been doing well; independent producers like Stone and ATP Oil & Gas (Nasdaq: ATPG  ) have returned 22% on average over the past year. Earlier this year, CAPS member DepthMigration argued that Stone Energy's debt load was weighing it down. However, highly rated All-Star IBDvalueinvestin now expects the energy producer's hopes for expansion to keep pushing it higher.

Cryptically intriguing
E-prescription services account for just 20% of Zix's overall revenue over the past 12 months (and falling), and the company' seeking "strategic alternatives" for the business -- which could mean it's looking for a buyer. So it's odd that investors still hope to profit from health-care reform by expecting possible government mandates to boose this slice of Zix's business.

Kjw90603, for example, suggests that demands for encrypted patient data could inject some needed growth into Zix's business model: "With the new ObamaCare plan this stock is sure to outperform. One of Obamas key points was making a electronic system available that would securely transmit and store patient data, doing away with the piles of paperwork."

Investors might be better served by focusing on Zix's email encryption services, the main driver for its revenue growth. Zix says it is on target to meet its revenue forecasts for the quarter; if certain adjustments hold true, it might just break into profitability. Zix already has the largest email encryption directory in the world; expanding those capabilities might be a prescription for success.

If Zix does decide to sell off its e-prescription services, it may want to consider GE or McKesson (NYSE: MCK  ) as possible buyers. Zix already notes that these players might want to move in to the field in a big way, should legislative mandates become a reality.

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. 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.

McKesson and MedcoHealth Solutions are Motley Fool Stock Advisor picks. 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 here. The Motley Fool's disclosure policy is capital idea.


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