Top-Rated Stocks That Treat Shareholders Right

The flipside 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 it 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*

Level 3 Communications (Nasdaq: LVLT  )

****

96.9%

94.9%

Monsanto (NYSE: MON  )

****

77.1%

94.1%

Raytheon (NYSE: RTN  )

****

67.7%

95.2%

Take-Two Interactive (Nasdaq: TTWO  )

****

61.7%

83.8%

Tesoro (NYSE: TSO  )

****

94.2%

99.6%

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 in deciding 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
Oil refiner Tesoro put on a show yesterday when it released an earnings report that soared above analyst expectations even after taking into account one-time gains and charges. Refiners like Tesoro and Valero (NYSE: VLO  ) have been feeling the pinch of high oil prices just as consumers have at the gas pump. With oil's decline, though, Tesoro was able to see gross margins jump 85% over last year and 65% from the previous quarter, and at least one analyst raised expectations for the refiner for the rest of the year.

CAPS member nexwave999 noted prior to the earnings announcement that not only had Tesoro guided investors higher for the quarter, but that the crack spread -- the difference in price between crude oil and the petroleum products like gasoline extracted from it -- was moving in the refiner's favor:

The crack spread has turnedin favor of [Tesoro] and refiners. Infact [Tesoro] said the other day that they will beat eps buy double. As the economy recovers next yr [Tesoro] will head back up.

Another company with the market in its favor is agricultural giant Monsanto, which has a commanding presence not only in the U.S. but is expanding its reach globally. While its earnings per share growth over the past four years has been a phenomenal 64% annually, analysts are still expecting forward increases between 27% and 32% a year over the next five years. CAPS member cash4momretmt sees the global market penetration as the catalyst for Monsanto's future:

Diversification in the global market will continue and result in recovery of stock price and continued earnings. Monsanto is a major player in world agriculture and will continue to be for the foreseeable future. The current price reduction is just a result of the overall market and a chance for those able to pick up shares at an excellent price.

Although Rule Breakers recommendation Take-Two Interactive rejected Electronic Arts' (Nasdaq: ERTS  ) offer of $26 a share and now trades for less than half of that amount, CAPS member MJKpayday saw it as an opportunity again just a few days ago:

About a year ago when Take-two was trading at $15 a share I considered buying this jam packed gaming company. But then EA made a bid well over the current trading price and you can bet I was banging my head against the wall for only considering the buy. Finally to my surprise the deal didn't go through and we're now all the way down to $11 and I'm not missing out this time.

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.

Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Electronic Arts is a Stock Advisor selection. Try any of our Foolish newsletters 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 has a disclosure policy.


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Related Tickers

10/1/2014 12:17 PM
MON $111.18 Down -1.34 -1.19%
Monsanto CAPS Rating: ***
TSO $62.09 Up +1.11 +1.82%
Tesoro Corp CAPS Rating: ****
TTWO $22.52 Down -0.55 -2.38%
Take-Two Interacti… CAPS Rating: ****
EA $35.10 Down -0.51 -1.43%
Electronic Arts CAPS Rating: **
LVLT $44.19 Down -1.54 -3.37%
Level 3 Communicat… CAPS Rating: **
RTN $99.54 Down -2.08 -2.05%
Raytheon Company CAPS Rating: ****
VLO $46.47 Up +0.20 +0.43%
Valero Energy Corp CAPS Rating: ****

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