Between shareholder-friendly stocks expected to underperform the market, and highfliers that pay little heed to their owners' interests, you'll find 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. ISS 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 which 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* |
|---|---|---|---|
|
Denbury Resources (NYSE:DNR) |
***** |
79.0% |
98.1% |
|
McMoRan Exploration (NYSE:MMR) |
**** |
64.3% |
62.3% |
|
NorthStar Realty Finance (NYSE:NRF) |
**** |
89.1% |
78.5% |
|
RAIT Financial Trust (NYSE:RAS) |
**** |
95.9% |
87.8% |
|
SandRidge Energy (NYSE:SD) |
**** |
62.6% |
58.5% |
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. How well a company treats shareholders shouldn't be least among them. Consider these rankings one way to gauge how these businesses stack up against one another relative to their shareholder policies.
Go to the head of the class
An oversupply of natural gas, coupled with recession-induced demand reduction, is keeping natural gas prices under pressure. Pricing is off 30% from the year-ago period, and natural gas remains well below its crude equivalent. Achieving equilibrium between the two may not come easily.
Chesapeake Energy (NYSE:CHK) is still pumping out record levels of gas from its Marcellus, Barnett, Fayetteville, and Haynesville shale plays, and even Denbury Resources is expanding output. In an earnings release today, Denbury reported an 83% drop in profits, owing primarily to lower prices. The company also said it boosted output of oil and natural gas to nearly 43,000 barrels of oil equivalent per day, a 10% jump -- but only after you account for the 60% sale of the Barnett Shale natural gas asset.
Denbury's long-term subordinated debt is approaching $1 billion, and CAPS member chk2595 worries that the company has bitten off more than it can chew:
The[y] got another company and a big hunk of debt by buying when oil prices are at the top for now. Before the merger, they had p/e of 34 and now it is way higher. One perch can not digest another perch without a big bellyache.
Feeling gaseous
SandRidge Energy is also set to report earnings today after the market closes, but it's not worried about any immediate problems. It recently got its 27-bank consortium to reaffirm its borrowing base of $985 million, while simultaneously reiterating its support for its $1.75 billion commitment. SandRidge added that it was also in compliance with all of its debt covenants, and that it's looking towards next year's startup of its new Century Plant. The company says it's holding 80 billion cubic feet of natural gas hedged at $7.70 per million cubic feet.
The additional capacity should come in handy, since CAPS member NOFY thinks we're looking at an inflection point for natural gas:
Energy especially Natural Gas is going to be in more demand as industry refocuses resource needs to a more clean energy.
Yet finding an undervalued oil and gas E&P firm is as difficult these days as finding elbow room in the shale plays. Companies in the CAPS Natural Gas sector have returned more than 13.5% over the past year, with some of the best performers, like Kodiak Oil & Gas (NYSE:KOG), tripling in value from their March lows.
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.
