The flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. Conversely, there are top-flight companies that also treat their shareholders with respect.
Institutional Shareholder Services -- the big name in corporate proxies -- measures how well a company 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. It assigns the stocks a rating that it calls its corporate governance quotient, or CGQ.
Some evidence supports the notion that companies with weaker governance have higher risk, decreased profitability, and lower valuations. We'll be looking at stocks that Motley Fool CAPS investors have marked to outperform the market and that also sport above-average CGQ scores, either in their index group or among industry peers.
|
Company |
CAPS Rating (out of five) |
Index CGQ Ranking* |
Industry CGQ Ranking* |
|---|---|---|---|
|
Ariad Pharmaceuticals |
*** |
69.90% |
77.00% |
|
Evergreen Solar |
*** |
83.10% |
73.00% |
|
Luminex |
*** |
92.40% |
93.40% |
|
Burger King |
** |
91.20% |
86.60% |
|
Dendreon |
** |
64.10% |
71.80% |
Source: Yahoo! Finance, Motley Fool CAPS.
*Relative placement when compared with companies in index or industry. Higher is better.
Although finding good companies and holding them for the long term is one of the greatest secrets to success in investing, there are many factors an investor should consider, and how well a company treats shareholders shouldn't be least among them. View these rankings as a way to gauge how these businesses stack up against one another when it comes to their shareholder policies.
Go to the head of the class
It's nothing new for Dendreon investors to wait for their stock to move. The stock had flatlined, more or less, since late 2007 as investors waited for new phase 3 trial data about the company's prostate cancer drug Provenge to be submitted to the Food and Drug Administration. In the past two months, though, shares rose again after the company reported very promising results that mean the drug might meet the agency's high standards.
Now with shares at an elevated level and Dendreon going into the FDA approval process, which may not be finished until early 2010, investors might find their stock's price won't move much. But Deutsche Bank analysts think approval for Provenge is in the cards and estimate that the drug could bring in $1.8 billion annually for the biotech. With that type of sales, investors could still experience significant upside -- if they're willing to wait again for FDA approval. Dendreon investors may be able to commiserate with investors in Antigenics
CAPS member DogDayAftern00n believes Dendreon is poised to pop, though, and likes its $90 million in cash and investments: "Potential of Provenge is huge; pipeline is extremely promising; secured Cash to operate for the next few years; very little debt."
Stocks under the CAPS Biotechnology tag have combined to become one of the top 100 performing tags (out of 853) over the past 30 days. The segment is up more than 23%, powered by Antigenics and Hemispherx Biopharma
Stocks carrying the Solar Power tag were also hot -- it was the 12th-ranked tag over the past 30 days -- with those 37 stocks combining to finish up more than 37%. Evergreen Solar climbed 26% during that time, while Ascent Solar Technologies
A lot will depend on whether or not Evergreen can reduce costs. The new Chinese manufacturing plant being planned should go a long way to helping contain cost/watt. This is a 2-3 year stock after which new tecnology will brush [Evergreen Solar] aside.
A Foolish quotient
Many factors go into whether a stock is a buy or a sell, but do corporate governance policies enter into your equation? 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.
