The flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests.
We've already looked at low-rated stocks that may deserve investor support, having earned high corporate governance quotients (CGQ) from Institutional Shareholder Services -- the big name in corporate proxies. But today we'll look at otherwise top-notch companies that may do their shareholders a disservice.
ISS 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. 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, but that sport below-average CGQ scores, either in their index group or among industry peers.
|
Company |
CAPS Rating (5 max) |
Index CGQ Ranking* |
Industry CGQ Ranking* |
|---|---|---|---|
|
CME Group (NASDAQ:CME) |
**** |
18.6% |
75.3% |
|
Synchronoss Technologies (NASDAQ:SNCR) |
**** |
36.1% |
49.7% |
|
OmniVision Technologies (NASDAQ:OVTI) |
***** |
11.2% |
8.4% |
|
Titanium Metals (NYSE:TIE) |
***** |
6.8% |
50.8% |
|
Williams Companies (NYSE:WMB) |
**** |
47.4% |
59.5% |
Source: Yahoo! Finance, Motley Fool CAPS.
*Relative placement when compared with companies in index or industry. Higher is better.
Although there are many factors that an investor should consider before buying or selling 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 based on their shareholder policies.
A come-hither look
Weak volume because of the crisis in the financial markets has been the problem plaguing CME Group, which has made the merger with New York Mercantile Exchange, a subsidiary of NYMEX Holdings (NYSE:NMX), a necessity. Because its own shares have fallen by half, the company has been pressured to raise its offer to attract the 75% of shareholders needed to make the merger a go.
Yet at these values, CAPS member mfhangman finds the stock attractive, with the prospects for price appreciation.
$673.99 close Jan 02 2008. Todays close $332.67. Questions of the NYMEX purchase, along with perceived [government] interference have beaten down this stock with a [vengeance]. $300 support level is real. Stock will soar in the next 6 months!
Not the apple of their eye
Even if Synchronoss Technologies got to snicker over the latest iPhone launch by Apple (NASDAQ:AAPL), which at first was marred by activation snafus, it was short-lived. The company, which lost the contract to allow user activation from home, must be smarting because about 1 million smartphones were sold during the first weekend.
Although Synchronoss' stock price went up with that original agreement, the company has been using its time since to diversify its customer base. But CAPS member fmahnke figures that any rally the shares have enjoyed is going to be as short-term as the glee at the problems Apple suffered.
This stock has gotten ahead of itself probably due to issues assorted with iphone activation problems. They are currently trading at a [P/E] of 22 and are [likely] looking at a [short-term] pull back after a 40% runup over the last couple of weeks.
Surgery needed
When I broke a hip a few years ago, I had titanium pins and screws inserted into the femur to hold the bone together. There's a lot that titanium can do, but apparently one of the few things it can't do is boost the share prices of companies like Titanium Metals.
That's not a worry to CAPS member ennui, who feels that the demand from the aerospace industry will eventually boost depressed share prices.
Okay, as of today (7/18/08), this pick is trailing in an absolutely dreadful market environment. There are delays in Boeing's construction program [and] the market for aircraft looks bleak. The price of [Titanium Metals] has fallen from over $13 when I put the stock into my CAPS portfolio, to $11. So...today I added the stock to my real-life portfolio.
A Foolish quotient
Many factors go into whether a stock is a buy or sell, but do corporate governance policies enter into your equation? Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks ought to make the grade..
