The flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. Conversely, 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 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.
|
Company |
(Max 5) |
Index CGQ Ranking* |
Industry CGQ Ranking* |
|---|---|---|---|
|
Cisco (NASDAQ:CSCO) |
**** |
82.2% |
98.7% |
|
CVS Caremark (NYSE:CVS) |
**** |
69.3% |
90.3% |
|
Monsanto (NYSE:MON) |
**** |
77% |
94.5% |
|
US Bancorp (NYSE:USB) |
**** |
54.6% |
97.1% |
|
Verizon (NYSE:VZ) |
**** |
64.5% |
95.8% |
Source: 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
Most investors wouldn't exactly peg a drugstore chain as a growth stock. But CVS Caremark is already the largest buyer and dispenser of prescription drugs in the country, and with its acquisition of Longs Drugs, it'll tip the scales at more than 7,000 stores and more than 50 million customers.
Although it's fighting the tide and going head-to-head with the likes of Walgreen (NYSE:WAG) -- not to mention Wal-Mart (NYSE:WMT) -- for the hearts, minds, and prescriptions of patients, the Longs purchase could trip up CVS Caremark. Big buys seldom go down easy.
CAPS All-Star traderpat9 says that as much as he likes Walgreen, he believes CVS Caremark will prevail because of its twin play in retail and benefits management.
Love Walgreens more/have owned for almost 10 years. But, can't let emotions get in the way of big gains. Does both retail & management benefit pharmacy-1 leg up on Walgreen. Get aboard the gravy train.
Try this on for size
The ephemeral plan offered by Treasury Secretary Timothy Geithner scared the markets when it was released because of what wasn't said. And banks like US Bancorp, which have held up rather well during the financial crisis because of their generally conservative leadership, have fared worse than others in the downturn following the release of the plan.
CAPS All-Star mrindependent finds the panic selling has gone overboard.
Recent panic selling is unjustified for this bank, which seems to be solvent. Management is conservative. The wealth management and transactions processing portions of this business enhance its value.
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.
