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 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.

Sources: 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, 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
There's no turning back on the new name Cliffs Natural Resources, even though the company has called off the merger with Alpha Natural Resources (NYSE:ANR). The former Cleveland-Cliffs had changed its name last month in anticipation of the deal going through, a deal once touted as a way to take advantage of the worldwide demand for steel and coal while raking in hefty profits. Now it says the economy is too uncertain for the merger to go through, and it might not have had the votes to win shareholder approval.

CAPS All-Star member DaBronxBull thinks Cliffs made the right choice in backing away from the merger, because it had agreed to pay premium prices when the market was in a different place:

Cliffs getting out of the Alfa deal (that was made at the peak of the market) seems like a good thing in my book even at a cost of $70M

The semiconductor industry is another one that's finding itself in a different landscape. Cypress Semiconductor followed the lead of other semi stocks and updated fourth-quarter guidance to forecast a loss in earnings, which helped push shares downward. But at least one company's insiders seem to think that may have been an overreaction. Cypress co-founder and CEO T.J. Rodgers bought more than a million shares, bringing his ownership stake in the company up to 11%.

Back in September, CAPS member kels1943 felt the market had discounted the shares too much, and that with the spinoff of its SunPower (NASDAQ:SPWRA) division, it will be able to better value Cypress:

The market is almost completely discounting the Cypress core business and it's transition out of cyclical products and into psoc [programmable system-on-chip] and other high margin products categories. After the Sunpower spinoff I look for Cypress to [rise].

It wasn't too long ago that a gas price of $1.75 a gallon was considered expensive. There's nothing like paying twice that amount to put it into perspective. Now, with the possibility of prices falling further, refiners like Marathon Oil are feeling the squeeze from declining margins. Splitting the company up, as some hope it will do, could make it more valuable, which is what CAPS member cmanasco is looking for to achieve a double:

With the potential for Marathon to split it's business into two equally valuable groups there is serious potential here for a double in the next couple of months, how often do you see that in recessionary times?!

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.