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. Now 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 (out of 5 max)

Index CGQ Ranking*

Industry CGQ Ranking*

Cell Therapeutics (Nasdaq: CTIC  )

****

85.4%

68.4%

Dow Chemical (NYSE: DOW  )

****

67.9%

94.3%

Intel (Nasdaq: INTC  )

****

74.9%

94.1%

Itron (Nasdaq: ITRI  )

****

75.6%

89.8%

UnitedHealth Group (NYSE: UNH  )

*****

91.4%

98.7%

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, 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
Shares of Itron may have risen on the news that Google (Nasdaq: GOOG  ) chose the company as a partner to spread its PowerMeter around the U.S., but it will take more than a few press releases to attract investors for the long term.

There was actually a series of developments that led to Itron's stock gaining 13% on Wednesday, including the Department of Energy boosting the size of grants that will be available for so-called "smart-grid" projects. The DOE is trying to encourage development of projects to monitor energy usage, with an eye toward optimizing and reducing reliance on fossil fuels. It raised by a factor of 10 the funding available for some projects -- from $20 million to $200 million.

That could result in some major wins for Itron, which serves more than 8,000 utilities. The company, which makes smart meters, already complies with agency standards, so it will have a head start against the competition. The Google partnership could expand its capabilities, even though the PowerMeter is a software gadget that consumers could install to monitor personal electricity consumption right on a home computer. The challenge is bringing the potential to millions more people. Right now, the PowerMeter is only available to a small number of people, and the utilities themselves will need to expand the program to a much wider audience for Itron to receive the full benefit.

Others are also competing for attention here. For example, Oracle (Nasdaq: ORCL  ) unveiled an end-to-end software suite that allows utilities to choose how to manage their operations and gives consumers the information needed to make better decisions about using energy.

The developments may cause analysts to rethink Itron's long-term growth outlook. The company is expected to report a 20% drop in revenues and a 50% decline in profits next quarter. But look more closely at the 14% long-term earnings projection. If the smart grid becomes more of a reality, Itron's earnings pick up considerably.

CAPS member liftthemup realizes knowledge is power.

With long-term energy demand on the rise, due to emerging economies such as China and India, more efficient use of energy will be necessary. Metering energy usage (electricity and gas) and charging based on the demand at the time of use will encourage users to defer usage at times of peak demand. President Obama has included stimulus money to promote the development of a smart electrical grid.

Demand for Itron's meters has been depressed by the current recession, however I think that the oil price spike to $140 per barrel has made Americans realize that we should reduce consumption to prevent a return to high oil and natural gas prices a few years in the future. I believe that the Public Utility Commissions will support the efforts of utilities to collect usage data through the installation of "smart" meters and use the data collected to make the generation system more efficient.

A Foolish quotient
Many factors go into whether a stock is a buy or a 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.

Google is a Motley Fool Rule Breakers selection. UnitedHealth Group is a Stock Advisor pick. Intel and UnitedHealth Group are Inside Value picks. The Fool owns shares of UnitedHealth Group and has sold calls on Intel. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Rich Duprey owns shares of and options on Intel 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's disclosure policy is as strong as tempered steel.


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