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Top-Rated Stocks That Treat Shareholders Right

By Rich Duprey - Updated Apr 5, 2017 at 8:04PM

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These companies offer admirable corporate governance policies.

The flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. But there are 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 the 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 look at stocks that Motley Fool CAPS investors have marked to outperform the market, along with sporting above-average CGQ scores  either in their index group or among industry peers.

Company

CAPS Rating (Max 5)

Index CGQ Ranking*

Industry CGQ Ranking*

Brocade Communications (NASDAQ:BRCD)

****

85.9%

85.1%

Cree (NASDAQ:CREE)

****

50.0%

81.8%

Harvest Natural Resources (NYSE:HNR)

****

96.5%

92.9%

Kroger (NYSE:KR)

****

80.4%

96.9%

Walter Industries (NYSE:WLT)

****

74.6%

69.4%

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 the greatest secrets to investing, there are many factors that 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 based on their shareholder policies.

A bitter harvest?
Back in September, CAPS member ValueArbitrage wrote the top bull pitch for Harvest Natural Resources, noting that the market was pricing the independent oil and gas exploration company on the basis of a doomsday scenario, without considering a number of levers it still had available.

[Harvest Natural] represents a compelling opportunity to invest in an asset and cash rich company that can easily double in the course of the next year, with the potential to triple over the next couple. At today's price this business trades at an enormous discount to its current [net asset value] despite the waterfall of revenue soon to fall [straight] to the bottom line, and should provide outstanding risk-adjusted returns with minimal downside for patient long term investors. Current concern over the potential nationalization of [its] venezuelan assets is overdone, and more than reflected in today's price.

That just might put ValueArbitrage in good company with value investor Monish Pabrai, who seeks out investments with low risk and high-reward potential. He lightened his load on a number of his fund's holdings, but Harvest Natural Resources was not one of them.

Brocade still buoyant
Since it agreed to buy Foundry Networks (NASDAQ:FDRY) back in July, things have not gone well for Brocade Communications, with plenty of changes made to the deal. While both stocks have fallen in value, and the blush has faded from the rose, the companies may still find themselves better positioned to take on Cisco (NASDAQ:CSCO) if they are together during this recession. CAPS member fortunefeller finds there's still a lot to like in Brocade.

Brocades commitment to growth, [its] integration with foundry networks, their niche in storage, their vision for their future direction not to mention the fact they could be a takeout target.

Brocade has been sending out strong signals for a while now, and the numbers from its recent quarterly report beat analysts' profit estimates and came in on the high side of its forecasts.

A Foolish quotient
Many factors go into whether a stock is 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.

Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of Kroger but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Kroger Co. Stock Quote
The Kroger Co.
KR
$46.79 (-0.17%) $0.08
Walter Energy, Inc. Stock Quote
Walter Energy, Inc.
WLTGQ
Wolfspeed, Inc. Stock Quote
Wolfspeed, Inc.
WOLF
$87.33 (6.45%) $5.29
Brocade Communications Systems, Inc. Stock Quote
Brocade Communications Systems, Inc.
BRCD
Harvest Natural Resources Inc. Stock Quote
Harvest Natural Resources Inc.
HNR
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$46.02 (2.45%) $1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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