Do These Stocks Deserve Your Support?

In the wake of the scandals that ruined investors in Enron and WorldCom and the options backdating fiasco, "corporate governance" became the watch-phrase of the new millennium and a whole cottage industry of rating management was born.

Some evidence supports the notion that those with stronger governance have lower risk, increased profitability, and higher valuations. Which means companies with poor corporate governance could be targeted by shareholder activists, hedge funds, or short-sellers. In short, they could be ripe for a fall.

Below, we look at stocks that are marked to underperform the market by investors on Motley Fool CAPS, but sport above average Corporate Governance Quotients (CGQs). Developed by proxy service Institutional Shareholder Services, a company's CGQ measures how well it performs in up to 63 categories covering four broad areas. Moreover, each company is scored relative to its market index and to its industry group.

Here are five that I'm highlighting today:

 Source: Yahoo! Finance, Motley Fool CAPS

Although there are many factors that an investor should consider before buying a stock, 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.

Down but not out
Bearing in mind that it might end up selling itself off, Bearing Point surprised everyone last month when it actually posted a profit – its first in three years. Yet it still expects losses next quarter and investors like CAPS member MoolaMonster predicted back in February that a sale was the most likely outcome for this company.

Read through weak financials and leadership. There is real value in [Bearing's] pool 17,300 smart and talented individuals with many long term contracts. This is a ship that can be turned around, or bought and turned around.

I expect the firm to be purchased within 1 year, or sooner if management cannot show immediate improvements. Bearing Point is trading at 0.14x Sales. Accenture trades at 0.87x Sales. IBM (NYSE:IBM) and Accenture are possible take over players.

MGIC Investment got a boost when MBIA (NYSE:MBI) showed the markets that not all credit had seized. It was able to announce a deal for reinsuring billions of dollars worth of municipal bonds. That's the kind of catalyst CAPS member msidemrader is waiting to see to signify the bottom of the current problems.

MGIC's book, as with most mortgage insurance companies, is getting stronger this year than ever. Once the bottom of the cycle is purged from their earnings, this stock will outperform the market as real estate appreciation slows, their policies will stop churning, and incomes will rise as claims fall. They have been beat to death by the market already too, and the name of their game is survival.

Having the market to itself for treating constipation after surgery was enough for top-rated CAPS All-Star member zzlangerhans to rethink his position on Adolor.

I just closed an underperform on Adolor and I'm ready to turn it around. While Entereg may not be a gangbuster success it's got a lot of potential. In every hospital in this country there's a ward of post-op patients getting their bellies tapped and listened to waiting for their guts to wake up so they can get fed and kicked out the door. Every surgeon would love to speed up that process and lower their hospital stay stats. I didn't think Enetereg would get approved, but now that it is I'm going to put my CAPS bet on it and start looking for the numbers next quarter.

A Foolish quotient
There are many factors that go into whether a stock is a buy or sell, so 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. Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks make the grade.