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 5) |
Index CGQ Ranking* |
Industry CGQ Ranking* |
|---|---|---|---|
|
Huntsman (NYSE:HUN) |
***** |
95.4% |
86.7% |
|
Qualcomm (NASDAQ:QCOM) |
**** |
65.0% |
96.1% |
|
USBancorp (NYSE:USB) |
**** |
54.2% |
97.8% |
|
Verizon (NYSE:VZ) |
**** |
66.6% |
96.8% |
|
Walgreen |
**** |
56.8% |
78.8% |
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 against one another relative to their shareholder policies.
Go to the head of the class
While enthusiasts contend the iPhone is the smartphone to have, you have to sign up with AT&T (NYSE:T) to get one. That's a major stumbling block for the 89 million subscribers to the country's largest wireless carrier, Verizon, and a problem for the carrier itself. AT&T enlisted more customers than Verizon did last quarter, no doubt in large part because of the iPhone, and the result spawned, as it usually does, rumors that Verizon is on the cusp of getting an iPhone of its own.
Yet there have always been problems with that scenario. First is the exclusivity contract between AT&T and Apple (NASDAQ:AAPL); another is the iPhone's inability to work on Verizon's network. The two are just incompatible.
However, all that may be about to change. The exclusivity deal will eventually give way to other carriers carrying the iPhone, but according to analyst investigations into the iPhone supply chain, Apple is preparing to launch a Verizon-compatible phone as early as next summer.
If the rumors prove true this time (and they at least have the appearance of being credible), this could prove to be a big win for Verizon. Subscriber numbers have been buoyed primarily by its acquisition of Alltel, while its landline business is dying, posting a 5% decline in revenue last quarter. The subscriber base for its FiOS broadband network is still expanding, too. An iPhone collaboration could help vault Verizon well ahead of AT&T in subscriber growth, where AT&T is already facing tough comparables from last year.
Verizon's latest entry into the smartphone fray, the Droid manufactured by Motorola (NYSE:MOT), might never have been the "iPhone killer" it was touted as, but Motorola's newest handset hasn't slain much of anything else, either. Despite some cool ads, one analyst pegs sales of the Google-operated smartphone at just 100,000 units. Even though some estimate the figure at closer to 400,000, it's still a less than rousing start.
Some investors think the new Android-backed offerings Verizon has going into the holiday season will keep it in the running. CAPS member kstoltz says that when you add in Verizon's dividend to your calculations, the shares could become a solid holding for the next year:
Deals with Google and Palm to bring the Motorola Droid and the Palm Pre into the fold will help bolster sales and finally give them something to compete with the AT&T and the iPhone. Those new releases, coupled with the 6.5% dividend and the fact that it's trading near its lows would indicate to me that it's got good upside potential over the next year.
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.
