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Do These Stocks Deserve Your Support?

By Rich Duprey - Updated Apr 5, 2017 at 7:55PM

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These shareholder-friendly stocks have been marked to underperform the market.

In the wake of the options backdating fiasco and the scandals that ruined investors in Enron and WorldCom, "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 companies with stronger governance have lower risk, increased profitability, and higher valuations. That 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:

Company

CAPS Rating

Index CGQ

Industry CGQ

Fifth Third Bancorp (NASDAQ:FITB)

*

93.5%

99.8%

General Growth Properties (NYSE:GGP)

*

72.6%

55.9%

JPMorgan Chase (NYSE:JPM)

**

74.4%

95%

MBIA (NYSE:MBI)

*

100%

100%

Rambus (NASDAQ:RMBS)

**

77.5%

66.9%

 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 based on their shareholder policies.

Walk this way
It could upset the chip market to its core, but a pre-trial court decision in a patent case for Rambus could change the market for dynamic random access memory. Rambus has accused a number of other DRAM makers of infringing on its patents, and a judge ruled in Rambus' favor on some of the more technical aspects of the case, making it easier for Rambus to explain to a lay jury how the infringement has occurred. The defendants represent an estimated 60% of the DRAM market, meaning Rambus could be in for some substantial royalty payments if it wins. Moreover, it is pursuing a parallel case with the International Trade Commission against NVIDIA (NASDAQ:NVDA).

CAPS member doomreaper is having none of it, though, and explains in great detail why he believes Rambus shares will drop soon. Here's an excerpt:

The price movement, technical analysis, and message board activities of Rambus have all the hallmarks of a stock that is being pumped to dump in my opinion.

Consider for a moment that during the week ended 12/12/2008, the stock price had exceeded 160% gains from two weeks prior, ... yet during that same time frame, a RAMBUS INSIDER sold shares instead of buying them.... I think any further upward momentum on this security is limited, it might fill the gap near $14.80, but will fall after that.

Investing in thirds
Investors are debating whether now is the time to establish a position in Fifth Third Bancorp. On the bull side of the argument, CAPS member Haabda finds the dividend cut a means of paying back the government's Troubled Asset Recovery Program loan early. Fifth Third isn't alone in cutting its dividend, though: KeyCorp, Wachovia, and Citigroup (NYSE:C) have all reduced their payouts.

Fifth-Third has been making some very wise decisions recently. Cutting their dividend to .01 allows them to pay back their TARP funds faster and shows they are being responsible. They have a very profitable ATM network.

Staking out the bear claim, tthwebster simply sees the market as casting a shadow on financial stocks, regardless of their individual merits. He feels there are probably better sectors to look at.

I dont expect market excitement toward financials for at least a year. As an investor you would be wiser to invest in infrastructure plays, oil and gold in the recovery when it comes. The recovery (by the way) is some time to come yet, only an occasional short rally to tempt bulls for now.

A Foolish quotient
There are many factors that go into whether a stock is a buy or a 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. Share your thoughts with other members on whether you think these stocks make the grade.

JPMorgan Chase is a Motley Fool Income Investor recommendation and NVIDIA is a Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Fifth Third Bancorp Stock Quote
Fifth Third Bancorp
FITB
$37.23 (-1.04%) $0.39
Rambus Inc. Stock Quote
Rambus Inc.
RMBS
$27.67 (-0.93%) $0.26
Citigroup Inc. Stock Quote
Citigroup Inc.
C
$53.76 (-0.78%) $0.42
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$122.59 (-0.84%) $-1.04
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$183.35 (-2.88%) $-5.44
MBIA Inc. Stock Quote
MBIA Inc.
MBI
$12.68 (-2.39%) $0.31
Brookfield Property REIT Inc. Stock Quote
Brookfield Property REIT Inc.
GGP

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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