Environmental, Social, Governance, or ESG-driven investing can mean a range of things, but for this article, we’re going to be looking at positive screening, otherwise known as light-green investing. This means that the ESG stocks I share are opportunity-seeking, instead of restricting the investment scope for financial sacrifice. They may not satisfy a hardcore ESG investor’s appetite, but are still thoughtful about the related issues.
ESG drives value to shareholders by ensuring that companies are socially responsible in aspects such as reporting earnings, board structures, recruitment processes, management remuneration, public-private interest and more. The environmental aspect adds to those matters by striving towards better energy use, waste management, and resource conservation.
All of these factors can contribute significantly to cost-cutting.
For this article, I used MSCI’s (NYSE:MSCI) ESG ratings. MSCI is one of two leading ESG data providers alongside Sustainalytics.
This article aims to present investors with ESG stocks set for significant long-term upside. My picks are:
- Procter & Gamble (NYSE:PG)
- Texas Instruments (NASDAQ:TXN)
- C.H. Robinson Worldwide (NASDAQ:CHRW)
- Teladoc Health (NYSE:TDOC)
- Nvidia (NASDAQ:NVDA)
- Adobe (NASDAQ:ADBE)
- Microsoft (NASDAQ:MSFT)
ESG Stocks: Procter & Gamble (PG)
Long-standing brand strength has assisted Procter & Gamble in ascertaining a dividend payout for 64 consecutive years. MSCI cites factors such as product safety and carbon footprint as drivers behind the company’s strong ESG rating.
Procter & Gamble recently beat its third-quarter earnings expectations with a revenue beat of $147.70 million and an earnings per share beat of 7 cents. Increasing gross and operating profit margins were a consequence of its productivity program. Procter & Gamble is in the middle of restructuring the business to improve its marginal productivity. Efforts are being made to digitalize, improve supply-chain efficiency, and build strategic marketing partnerships to taper costs.
The value of the stock can be spotted within the PEG ratio and the dividend yield. The stock’s GAAP PEG ratio of 0.13 sits well below the sector median of 0.97, indicating that growth outweighs the price to earnings multiple. Furthermore, a forward dividend yield of 2.54% doesn’t only mean that income prospects are bright, but it also means that the company’s growth is intact, which is a good sign for value investors.
Texas Instruments (TXN)
As a company that emphasizes human resource development and corporate behavior, Texas Instruments receives a near-perfect rating from MSCI. I like the stock as a semiconductor play due to the diversity in the company’s distribution lines. A growing electronics market and a rebound in the auto market should contribute immensely to its top line moving forward.
Texas Instruments reported revenue growth of 9.23% in the previous quarter. In addition, operating margins are at nearly 43% and growing, while net income has reached new heights of $1,745 million.
A dividend yield of 2.1% is seen as high relative to the sector. I used the P/E price multiple and expected EPS and calculated an intrinsic value of $226, worth an upside of roughly 19%. KeyBanc’s recent price target of $240 per share should breathe air into the argument.
ESG Stocks: C.H. Robinson Worldwide (CHRW)
Corporate governance and behavior have caused an upgrade to a AA rating of late for this logistics and shipping company.
C.H. Robinson is an overlooked stock, in my opinion, a sort of silent monster if I could put it that way. As a non-asset-based transport provider, it can keep operations streamlined most of the time. The company has experienced 26.25% in year-over-year revenue growth and 125% growth in normalized net income year over year.
C.H. Robinson uses a growth through acquisition strategy, which allows for improvements in top and bottom line earnings through synergies. Notable acquisitions include Milgram & Company, Space Cargo, Dema Service, and Prime Distribution Services.
Judging based on relative value, the stock’s very attractive. A price to sales ratio of 0.72 and a PEG ratio of 0.9 are both below sector averages. An attractive dividend yield of 2.2% signals both income and value prospects.
CH Robinson recently received a $117 price target from UBS, which could mean an upside of 26%.
This healthcare tech stock has pulled back by over 20% over the past year after its merger with Livongo Health, followed by a class-action complaint against the latter. The stock leveled out in the last month with a 3% gain, and investors are optimistic, following the company’s reported 150% year over year in revenue growth last quarter.
Teladoc has increased its asset base immensely since its inception. The company has acquired over $969 million in health tech assets, which can add to both its top-line and bottom-line growth.
With a price to book ratio of 1.54 versus its five-year average of 6.52, I certainly see relative value at play.
ESG Stocks: Nvidia (NVDA)
Nvidia has been in a speculative space of late, but I believe that shouldn’t be the case. The company is gaining market share in an expanding industry. Furthermore, Nvidia is a cash-rich company, which is being used for growth acquisitions, dividends, and share buybacks. The company beat its revenue expectations by $252.24 million in its latest earnings report while doubling net income year over year.
Analysts from BMO Capital remain optimistic as they placed a $1,000 price target on the stock last week. I think the stock could reach the $1,190 handle by next year as I believe cash flow and EPS growth will lead the stock forward.
Corporate governance, behavior, and human capital development are the predominant factors contributing to the company’s AAA ESG rating.
The stock has massively outperformed its sector median over the past three months. Profitability has been the key driver behind the stock’s performance. An operating margin of 35.75% is accompanied by a return on equity of 45.14%. Furthermore, Adobe’s cash from operations has nearly reached an impressive $5.8 billion.
Adobe’s number of shares outstanding has decreased dramatically over the past seven years. The company is currently in the middle of an $8 billion share repurchase program for the fiscal year of 2021. It announced last year that a share repurchase program worth $15 billion for the fiscal year of 2024 was authorized as well.
I used the P/E multiple and multiplied it by the EPS to find a possible upside of 20%. If shares continue to be repurchased and diluted EPS continue to improve, investors could expect returns in excess of even that.
ESG Stocks: Microsoft (MSFT)
Corporate governance and exploiting opportunities in cleantech have assisted Microsoft in achieving a favorable ESG rating. I wrote about Microsoft in a previous article. The company is streamlining business units well, with necessary capacity adjustments made in its hardware and software offerings. Microsoft’s expanded well through asset and data acquisitions over the years and is continuing to do so.
Microsoft has experienced 15.34% growth in its year-over-year revenue growth in the trailing 12 months. The company’s operating margins have reached new highs, and TTM net income has also grown 21.07% year over year. In addition, Microsoft’s return on equity of 44.99% is more than six times the sector average.
With impressive margins and the fact that the company has a history of share buybacks, makes for exciting times if you’re an investor.
ESG investing is about more than the concept of “the greater good.” ESG stocks maximize value to shareholders in a variety of ways. The picks in this article present investors with a variety of value and growth opportunities to think about. I judged these stocks based on long-term prospects, and I suggest that investors include them as part of a portfolio if they are to invest. If there are any questions regarding ESG, then feel free to contact me directly!
On the date of publication, Steve Booyens held a LONG position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.