The flipside to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests.

We've already looked at low-rated stocks that may deserve investor support, having earned high Corporate Governance Quotients (CGQ) from Institutional Shareholder Services -- the big name in corporate proxies. But today, we'll look at otherwise top-notch firms that may do their shareholders a disservice.

ISS 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. 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, but which sport below-average CGQ scores, either in their Index group or among industry peers.


CAPS Rating (5 max)

Index CGQ Ranking*

Industry CGQ Ranking*





Alcoa (NYSE:AA)




Altria (NYSE:MO)




Conexant Systems (NASDAQ:CNXTD)




Valero (NYSE:VLO)




Source: Yahoo! Finance, Motley Fool CAPS
*Relative placement when compared to companies in index or industry. Higher is better.

Investors should consider many factors before buying or selling a stock, including how well it treats shareholders. View these rankings as a way to gauge how these businesses stack up against one another relative to their shareholder policies.

A slick trick
We've all been breathing a big sigh of relief now that the price of oil has at least temporarily stopped its torrid run-up, and begun to ease back a bit. Now we're hoping to see that show up at the pumps. Yet while the reprieve may be welcome, it also seems temporary, since many of the same forces that were driving prices higher remain in place. That could make refiners like Valero and Tesoro (NYSE:TSO), which have both seen their shares fall by more than 50% since the beginning of the year, now seem attractively priced.

Such short-term issues attract CAPS member Aphexwolf, but he finds the longer-term outlook for Valero more uncertain, particularly if alternative energy gains more acceptance. "I think this company will do great in the short-term as the price of oil rises," he wrote, "... but in a few years when alternative energy becomes more mainstream this company will suffer...unless of course it has any alternative energy up its sleeve."

Put that in your pipe
Although their stocks have generally tracked each other, investors in Phillip Morris International (NYSE:PM) have enjoyed a small gain over the last quarter, while investors in its sister company Altria are nursing a small loss. Despite continued antagonism toward smokers here in the U.S., international markets are friendlier, and the spinoff's first solo quarter produced double-digit sales growth and increased profits, partly thanks to a weak dollar. At least one analyst also notes that Altria is facing fewer lawsuits these days, lowering the risks that were once endemic to it.

CAPS member red05xfire supports the theory that so-called "sin stocks" will continue to thrive even in a recession. And considering that Altria also owns a 28% stake in SABMiller, you can smoke 'em and drink 'em while watching the technical indicators and waiting for the economy to improve:

As a sin stock, [Altria] is, generally speaking, not affected by a slowing economy. Moreover, its MACD, RSI, and MFI all look like a rebound is in order! Third, place [Altria] against the S&P for the last six months and while our economy drops into the dirt, [Altria] thrives.

A Foolish quotient
Many factors inform whether a stock is a buy or sell; do corporate governance policies enter into your equation? Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks ought to make the grade.

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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.