Stocks Doing Right By Shareholders

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. 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, smaller 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.

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. 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
As lousy as the economy has been, the semiconductor sector hasn't performed nearly as badly as analysts were expecting. It's estimated that personal computer and cell-phone sales account for 60% of all chips sold, and those industries are now expected to improve over previous forecasts. The Semiconductor Industry Association predicts that an improving economy will power up chip sales by more than 10% next year, a significant upgrade from the prospects it forecast back in June.

Others think the industry could go even higher, asserting that unit sales of PCs -- previously forecast to drop next year -- could now see low-single-digit growth. Smartphone sales have also surged, up 12.8% over last year in the third quarter. In particular, industry analysts expect smartphone sales to grow around 20% annually through 2014, by which time they should account for 29% of handset sales. Although Nokia's (NYSE:NOK) Symbian operating system dominates the field, others sporting Google's (NASDAQ:GOOG) Android operating system are expected to eat into that lead.

Applications and services are driving the pace of smartphone growth, regardless of who actually makes them. That agnosticism is good news for Skyworks Solutions, a manufacturer of chips for cell phones and wireless devices. It reported a 2% greater quarterly profit year over year, and raised first-quarter guidance above analyst expectations as demand and backlog strength for its chips improved.

CAPS member sk8terman looks to the semi industry to fuel future expansion: "Smartphones and Netbooks are the largest consumer growth story for the next 3 to 5 years."

Good medicine
Lowering your cholesterol has obvious benefits to your overall health, so long as it doesn't create other health problems. In that case, the cure might be worse than the disease. Isis Pharmaceuticals' mipomersen effectively cuts fatty deposits in arteries, but might not be the right treatment for everyone. In some patients, it elevates liver enzymes, which could lead to long-term trouble. That's still a prescription for a profitable drug, but the market didn't like Isis's recent announcement that it was pushing back plans to file its marketing application from late next year to mid-2011.

Shares of the drug manufacturer's stock plummeted on the news, but that seems to have provided investors with a terrific entry point. As TMFBiologyFool says, "Mipomersen works."

LookknforFun agrees with the potential, but is disappointed about the lowered likelihood that Isis might become a takeover target:

Mipomersen will be the first Antisense drug to market in about 20 years and only the second antisense drug to market. Isis has approx. 18 drugs in its portfolio and an approval of Mipomersen will sharply increase its share price as investors will notice and value its pipeline better. Better cash position may also result in a possible buyout of the Co. however, due to the structure and complexity of its partnerships it is highly unlikely to be acquired. Isis will remain independent until it finds a true block buster drug with over 2B in revenue which it is Co marketing.

A Foolish quotient
Many factors go into whether a stock is a buy or a sell; 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.