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, 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.

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
With Cisco officials expecting global data traffic to double every year through 2013, the Internet network gear provider spent about $7 billion last year on improvements to its video and wireless data products. Its recent $3 billion acquisition of Starent Networks positions it to take advantage of increasing demand for equipment that wireless carriers use to route mobile traffic.

CEO John Chambers says, "This is one of the most robust positive turnarounds I've seen in my career," and predicts that Cisco's revenues will rise another 23% to 26% this quarter, building on the 23% increase in net income the company generated in its second quarter.

Cisco's not alone in forecasting greater tech spending. After a quarter that included a 42% increase in chip revenues for corporate server systems, Intel (NASDAQ:INTC) is hoping for hefty increases going forward, too.

Considering that gear maker Cisco is closely tied to the growth of the Internet and the wireless world, CAPS member BABentley sees a strong growth trajectory:

I'm convinced that Cisco is a fundamental part of the Net, it has a moat to entry into its space and the Net is a growing industry (not leveling off, certainly not shrinking) for a lot more than five years to come. Its like buying whomever built the Model-T in the 1920s or so. Cisco won't last forever, but they should outperform for certainly 5 years.

Getting left back
The Caremark acquisition was supposed to be the tail that wagged the dog, but CVS Caremark is finding that model coming under increasing pressure. In the latest quarter, it lost two big contracts that cost it $4.5 billion for the coming year, including one for the state of New Jersey, where Medco Health Solutions (NYSE:MHS) beat it out for the business. Although CVS Caremark added 125 new clients generating $1.4 billion in wins, and posted a 92% retention rate, it wasn't enough to offset the losses.

CAPS member stockmarketmama believes the sell-off went too far:

I think CVS is pretty undervalued at the moment. Despite the fact that I think that there are way too many CVS pharmacies directly across the street from the competition (which I don't understand) I think CVS is a good value at the moment.

Almost 1,600 CAPS members have rated the pharmacy chain, and more than 96% still believe it's going to outperform the broad market averages. Tell us what you think on the CVS Caremark CAPS page.

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.