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 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 investors on Motley Fool CAPS have marked to underperform the market 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 |
---|---|---|---|
First Solar |
** |
85.3% |
74.8% |
General Motors |
* |
96.1% |
100.0% |
Hartford Financial Services |
** |
66.0% |
91.7% |
Morgan Stanley |
** |
82.0% |
95.1% |
USANA Health Sciences |
* |
68.7% |
78.1% |
Sources: Yahoo! Finance, Motley Fool CAPS.
Although an investor should consider many factors 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
It's turning out to be ignominy piled on top of insult. First Toyota
Although GM is facing some pretty stark challenges, not everyone is convinced that it still won't pull the rabbit out of the hat. CAPS member zappy01 thinks there's a large enough probability that the once-top carmaker will remain solvent long enough for car sales to begin climbing again, perhaps as early as this year.
I admit this is a gamble. Auto sales are likely to increase in 2010 [because of] pent-up demand. Today (2009) people are putting off new car purchases during this wait-and-see period. [Eventually], those who still have jobs, will start buying autos again. The government bailout should keep GM floating long enough so they can enjoy the rebound in auto sales. If gas and oil prices stay low, we may even see some of the rebound effect in mid to late 2009. The question is, does anyone still like GM enough to buy their cars and trucks or has Toyota taken the lead for good?
Is it time?
Having built a reputation as the low-cost manufacturer of solar panels, First Solar has been a leading investor favorite in the cleantech sector. Yet the results last month from SunPower
CAPS member evilcliver thinks that current conditions could lead to industry consolidation and that First Solar, as a top-tier leader, would be able to find some bargains.
Appears to be positioned well to take advantage of any industry consolidations. Obama clean energy initiatives should help as well. There is still the threat that a new more efficient solar technology may blindside them.
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.