In the wake of the scandals that ruined investors in Enron and WorldCom and the options backdating fiasco, "corporate governance" became the watch-phrase of the new millennium and a whole cottage industry of rating management was born.

Some evidence supports the notion that those with stronger governance have lower risk, increased profitability, and higher valuations. Which means companies with poor corporate governance could be targeted by shareholder activists, hedge funds, or short-sellers. In short, they could be ripe for a fall.

Below, we look at stocks that are marked to underperform the market by investors on Motley Fool CAPS, but sport above average Corporate Governance Quotients (CGQs). Developed by proxy service Institutional Shareholder Services, a company's CGQ measures how well it performs in up to 63 categories covering four broad areas. Moreover, each company is scored relative to its market index and to its industry group.

Here are five that I'm highlighting today:


CAPS Rating

Index CGQ

Industry CGQ

American Superconductor (NASDAQ:AMSC)




FuelCell Energy (NASDAQ:FCEL)




Sequenom (NASDAQ:SQNM)




Sun Microsystems (NASDAQ:JAVA)




SunTrust Banks (NYSE:STI)




Source: Yahoo! Finance, Motley Fool CAPS

Although there are many factors that an investor should consider before buying a stock, how well it 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.

Down but not out
Virtualization is becoming more diverse as outsiders like Sun Microsystems enter a field that the likes of VMware (NYSE:VMW) had almost all to itself. Yet that gives Sun a chance to enter areas that others have so far failed to exploit. That's why CAPS member DClingman thinks Sun needs to get the message across of what it is trying to achieve.

It's a great company who needs to get it's message straight. There's a range of new and innovative ideas coming out of Sun if they can just delivery a clear explanation to investors on how it all ties together.

Selling genetic analysis tools to genomics researchers has served Sequenom well, but the huge potential in the diagnostic tests market has spurred the biotech to develop two fetal tests this year with a planned third test for Down Syndrome scheduled for next year. It used the market's recent attraction to it to buoy its balance sheet with a $100 million secondary offering that ought to help it further advance its pipeline. CAPS member Darkwingsd figures the sky's the limit if Sequenom continues on this path.

This stock has a very high market potential for the Trisomy 21 market. the molecular diagnostics industry is about a 50 Billion dollar industry and if they have a good product pipeline for this NON-invasive prenatal testing, the sky is the limit. They current have two products in the pipeline, one for RhD and one for Downs.

While national banking giants like Wachovia (NYSE:WB) continue to wobble in the wake of the financial crisis gripping Wall Street, regional banks like SunTrust actually have been affected very little. Where Wachovia has lost about a third of its value over the past week, SunTrust was actually up more than 5%, underscoring the value of looking at "pre-disastered" stocks. Although CAPS member optionhater thinks the macro environment will eventually weigh down against it too: "[its] geographical footprint is clobbering its loan portfolio. Its mid-range size creates a high efficiency ratio which will prove difficult to cut in this operating environment."

A Foolish quotient
There are many factors that go into whether a stock is a buy or sell, so 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. Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks make the grade.

VMware is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters 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 has a disclosure policy.