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 companies with stronger governance have lower risk, increased profitability, and higher valuations. Conversely, 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 which sport above-average Corporate Governance Quotients (CGQs). Developed by proxy service Institutional Shareholder Services, a company's CGQ measures how well it 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.

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.

Searching for answers
Cowering in the corner like a whipped cur isn't the sign of a winning company, so I find myself in agreement with billionaire blogger Mark Cuban when he says that Yahoo! needs to forget about Microsoft (NASDAQ:MSFT) for the time being, go out into the marketplace, and start making acquisitions. Watching Jerry Yang and the board vacillate and commiserate over their failed merger bid makes Yahoo! look more like a loser organization than a winner intent on overcoming adversity.

CAPS member mitleg agrees that the Internet portal has been problematic this year, but with new leadership and a solid balance sheet, Yahoo! could be in a good position to grow:

This company has been problematic. With Yang gone, better days would seem to be ahead. I think Ichan will be a positive influence. They have plenty of cash. They are trading slightly above book, and in spite of all the issues they still have more hits than anyone.

Reading tea leaves
Starbucks once had people willingly parting with $4 for a cup of $0.50 coffee, the recession has made the overpriced brew much less of a necessity. So how has the coffee purveyor responded to the challenge? By offering overpriced cups of tea, with the new drink varieties selling for as much as $3.50 each.

When Starbucks started selling premium coffee, consumers' only other options were varying degrees of sludge from diners and donut shops. Now, plenty of companies have attempted to replicate Starbucks' success, and teahouses, and rivals such as Peet's Coffee & Tea (NASDAQ:PEET) are flourishing.

While this Fool finds the decision puzzling, and likely to leave a bitter aftertaste, CAPS member epmccart thinks it's much more difficult than it seems to reproduce the entire Starbucks experience. epmccart is confident that the java giant will add up to some cool beans in the future:

I agree that right now, a four-dollar coffee is a hard sell; however, I think that Starbucks will pull through the recession: it's Starbucks. Yes, [McDonald's] and Dunkin' Donuts may be upping their quality, but Starbucks is branded - it's known for being quality, trendy, eco-friendly ... go into any Starbucks and look at the number of people working on their laptops/writing/reading/talking, etc. ... Starbucks has managed to associate its name with quality, trendiness, and the "cozy coffeeshop" atmosphere. ... I feel like that will keep a solid core customer base until the people who are downgrading to cheaper coffee can afford it again.

A Foolish quotient
Many factors 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.

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