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 be looking 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.
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Company
|
CAPS Rating (Out of 5)
|
Index CGQ Ranking*
|
Industry CGQ Ranking*
|
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Duke Energy (NYSE: DUK )
|
****
|
89.6%
|
95.5%
|
|
Verizon (NYSE: VZ )
|
****
|
67.1%
|
96.8%
|
|
Walgreen (NYSE: WAG )
|
****
|
57.5%
|
80.6%
|
|
Walter Energy (NYSE: WLT )
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***
|
80.3%
|
64.1%
|
|
Waste Management (NYSE: WMI )
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*****
|
63.4%
|
93.8%
|
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
Verizon's wireless growth has been solid as of late, but the company has been feeling the heat as customers switch allegiance to AT&T (NYSE: T ) to get the new iPhone 3GS. Although Verizon saw some customers leave in June as the iPhone 3GS came out, it still added 1.1 million new customers and had a low churn rate.
As that market intensifies, Verizon has shifted some effort to attract cost-conscious consumers, who have been switching to prepaid phones. The telecom has been selling wholesale minutes to Tracfone Wireless, which offers prepaid wireless calling. Tracfone resells those minutes as part of a no-contract plan for just $30 a month -- a price that undercuts Verizon's retail operations.
Prepaid plans are hot, and they no longer carry the stigma of being a second-rate phone option. Sprint Nextel (NYSE: S ) recognizes consumers' frugality and is buying Virgin Mobile to strengthen its own popular Boost Mobile brand, but Verizon's move is riskier. A cheap, prepaid plan offering Verizon's services without all the hassles and hidden fees of its post-paid offering just might cannibalize its wireless business.
Still, even without an iPhone, Verizon's strong portfolio of phones is still a worthy contender. The company offers service for the recently launched Research In Motion's BlackBerry Tour, and it should profit by the renovation of the BlackBerry Storm phone later this year and the Palm Pre next year. In fact, CAPS member atsfstan thinks Verizon's relationship with Research In Motion will be enough to maintain its industry-leading position.
Largest mobile phone provider in the world. Has been able to [increase] earnings, revenue and cash flow over time, which is good for a business that is this capital intensive. Good connection with [Research In Motion], which over time will win with blackberry against Apple.
No middle ground
Duke Energy is looking to capitalize on the push toward fewer carbon emissions by expanding its nuclear footprint. With 441 reactors in 31 countries, nuclear power already provides 17% of the world's electricity. The next generation of nuclear reactors, called advanced light water reactors (ALWR), promises to produce power more efficiently, at lower cost and with greater safety.
Pending government approval, Duke Energy will build these third-generation reactors, and it proposes to build its next one in Ohio using designs from Areva. CAPS member armrha gave a thumbs-up to Duke last week and had this to say:
They will likely be building ALWR's in the coming years. Simplified designs need fewer workers and produce more energy safely. Dependence on electricity and carbonless electricity alternatives will drive more nuclear plant construction.
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.
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