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 companies 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. Each company is scored relative to its market index and to its industry group.

Here are the five that I'm highlighting today:


CAPS Rating (out of 5)

Index CGQ^

Industry CGQ^

Ameren (NYSE:AEE)




Life Time Fitness (NYSE:LTM)




Ryder (NYSE:R)




Strayer Education (NASDAQ:STRA)




Teradyne (NYSE:TER)




 Source: Yahoo! Finance, Motley Fool CAPS.
^ Higher is better.

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.

Downturn in chips
When chip makers like Intel (NASDAQ:INTC) sailed into stormy seas and cut sales forecasts for the fourth quarter, it was just a matter of time before the companies that test the chips that Intel and Advanced Micro Devices (NYSE:AMD) make had to take dramatic action, too. Teradyne, the world's leading manufacturer of chip-testing equipment, announced that it was laying off 5% of its workforce, managers will take pay cuts, and all employees would be furloughed over the weeks of Thanksgiving, Christmas, and New Year's Day.

Tough times, indeed -- something which CAPS member alvojiggy1 had suggested back in October would work against Teradyne, although he remains optimistic overall:

Expected EPS growth for next fiscal year is positive. S&P rating is 4 to 5 stars. Debt to capitalization is less than 5%. EPS share growth and effect on the multiple of the stock is postive, hence it's PEG ratio is low. Stock has been beaten to a pulp far more than the stock should be worth. ... The company however is in an unfavorable sector at the moment which could work against them.

A utility player
There was a time when utility stocks were seen as "widows and orphans" investments, companies so solid that they could be recommended to even the most vulnerable of investors. Today's markets are a different world, and even utilities can suffer from shocks and volatility. Ameren is a Midwest-based utility that's found the current credit crisis a cause for concern. So it's cutting $1 billion from its budget in an effort to shore up its cash reserves and bolster its credit standing.

While Ameren is seeking to delay some environmental projects, CAPS member greglpc1 feels that the projects Ameren moves ahead with will generate enough positive sentiment that the public won't balk at future rate increases. As a relatively low-cost energy producer, that ultimately helps its bottom line:

Getting approvals for an additional nuclear facility at its Callaway nuclear power plant site. The community is behind this decision. The company is spending to make its coal facilities pollution free and the community is behind this too. It makes for an easier sell when the Company can show that the extra charges have gone into "feel-good" projects and the lights stay on! These guys know what they are doing and are making money at it. Also, AEE is one of lowest cost utilities in the country. So that leaves plenty of upside sell room if rate increases are needed.

A Foolish quotient
There are many factors that go into whether a stock is a buy or sell, and 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.