What's the flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. But there also are top-flight companies that 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 5)

Index
CGQ Ranking^

Industry
CGQ Ranking^

3M (NYSE:MMM)

****

78.0%

97.1%

Applied Materials (NASDAQ:AMAT)

****

51.1%

85.8%

CSX (NYSE:CSX)

****

86.2%

95.2%

Occidental Petroleum (NYSE:OXY)

****

78.2%

97.8%

WellPoint (NYSE:WLP)

****

52.1%

89.9%

Sources: 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 relative to their shareholder policies.

Go to the head of the class
We know that Applied Materials has moved into the solar industry in a big way since its first foray in 2006. Its goal was to reduce the cost per watt of solar power, and CAPS member Skadi67 said a couple of months ago that the segment was mature enough now that it would "likely add to the revenue rather than absorb revenue from the semiconductor business."

Good call. Trailing revenue for the manufacturer's solar segment jumped to 23% of total sales last quarter and tripled from a year ago.

Yet that doesn't mean it's in the market to buy Energy Conversion Devices (NASDAQ:ENER), which actually makes solar panels. While strange bedfellows are discovered under the sheets all the time in the market, pursuing a solar materials supplier like Norway's Renewable Energy makes more sense, but even that rumor seems to have little merit to it.

With First Solar (NASDAQ:FSLR) setting off a flare of cosmic proportions that it's in line to build a huge solar power plant in China within the next decade, that could be the catalyst that CAPS member maxdogdiesel was looking for in March: "Good company but they'll need time for the solar business to pickup and pc purchases to come back."

While there's reason for hope in the solar business and you gotta appreciate AMAT's strong balance sheet, I still think we haven't seen the worst of it for solar stocks. There's still a lot of inventory sitting in warehouses, credit remains constricted even if it's not as tight as it once was, and deals like First Solar's are big on flashiness but short on details.

Applied Materials has suffered at the hands of these factors and reported trailing losses of more than $212 million last quarter. With analysts expecting earnings to grow just 6% over the next five years and AMAT trading at 42 times 2010 forward earnings, the stock doesn't seem very cheap at the moment.

Free cash flow generation is also being sorely tested, so with AMAT's share price having risen by almost half over the past six months, I don't find a compelling reason to be a buyer at this point.

Feel free to tell me your point of view in the comments box below.

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 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.

First Solar is a Motley Fool Rule Breakers selection. 3M and WellPoint are Motley Fool Inside Value selections. Try any of our Foolish newsletter services 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 here. The Motley Fool's disclosure policy is a capital idea.