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 catchphrase 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.

Whistling Dixie
Taking a cue from the successful drug discount programs launched at Wal-Mart Stores (NYSE:WMT), grocery store chain Winn-Dixie is offering some 400 generic drugs at discounted prices. Of course, it would be fair to ask, what took them so long? Wal-Mart's been offering it for two years already. It seems a little late to the game to decide that now is the time to become a shopper's destination for savings, such as Kroger (NYSE:KR) has been doing regularly.

Top-rated CAPS All-Star kristm finds Winn-Dixie a day late and a dollar short and will not be able to make inroads against any of its larger rivals.

Even strong grocery stores are being squeezed right now-their costs are higher and their customers have less money to spend. [Winn-Dixie] is a legacy grocer with older stores in less prime locations, with weaker management and a damaged brand. The CEO previously ran Albertson's and Cub Foods into the ground before taking his current misleadership role. Kroger, Wal-Mart, Publix, Royal Ahold, Sam's Club, etc. are all in better situations and will eat Winn-Dixie alive in the current economic climate.

Little orphan Allos
Now that it has the protection it's been seeking for its cancer therapy pralatrexate, Allos Therapeutics needs to do something with it. In the past week it has been granted orphan drug status to treat follicular lymphoma and diffuse large B-cell lymphoma, which is on top of having been given similar status back in 2006 for treatment of T-cell lymphoma. Yet it still needs Food and Drug Administration approval to bring the drug to market, and CAPS member giftofgod is not sure Allos has what it takes.

Regardless of what is in the pipeline, most companies need to have some revenue in order to make a profit. Even if this company gets FDA approval, it takes time and money to market a drug and make a profit.

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.