Top-Rated Stocks That Treat Shareholders Right

There are shareholder-friendly stocks expected to underperform the market, and highfliers that pay little heed to their owners' interests. Somewhere inbetween, you'll find top-flight companies that also manage to 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. Each company is scored relative to its market index and its industry group. ISS assigns each stock 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.

Source: Yahoo! Finance, Motley Fool CAPS.
*Relative placement when compared to companies in index or industry. Higher is better.

Although finding good companies and holding them for the long term is one of investing's greatest secrets, there are many factors that an investor should consider when evaluating a potential portfolio pick. How well a company treats it 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
Despite a downtrodden economy, railroads have managed to continue posting strong earnings. Norfolk Southern (NYSE:NSC), for example, saw profits jump 18% to $1.21 per share in the last quarter even as freights volumes fell 8%. That's similar to the 23% rise in earnings Burlington Northern reported the week before. Still, analysts are beginning to question how far down the tracks price increases can drive the railroads, before poor economic conditions force them to run out of steam.

CAPS member addedupon thinks railroad stocks are a top environmental pick, noting that Warren Buffett has invested even more heavily in Burlington Northern:

Rail is a top green play. Interstate system is clogging and environmental concerns won't allow us to expand it much, high energy prices will return, increased regs, all contribute to the ressurrection of the rails.

In addition, something unusual is happening with Warren Buffett and [Burlington Northern Sante Fe]. He now owns well over 20% of [Burlington Northern Sante Fe] and continues buying. I know of no other stocks where Buffett owns > 20% without moving for controlling interest or an outright buyout. 20%, of course, is the equity method threshold.

Try this on for size
Although there appears to be a lot to like about Wyeth's purchase by Pfizer (NYSE:PFE), acquisitions lately have a way of running into all kinds of snags that end up turning the deals sour. That's why top-rated CAPS All-Star member TMFHelical thinks there are enough questions still unanswered here to bet against the buyout:

This call is not about Wyeth at all, but the Pfizer deal. I think it will fall through or reprice, despite the massive surrender charge. Political pressure from the announced personnel cuts will be part of the reason.

Wyeth looks like a clear arbitrage opportunity to the upside, but I chose to be contrarian. I will close this selection quickly if I get a 5 (probably should have waited for an up day to do this).If it falls through, I'll likely become bullish on Wyeth

A Foolish quotient
Many factors combine to make a stock a buy or 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.