ESG Investing: 7 Profitable Stock Picks for the Socially Responsible

  • The recent market slowdown provides an excellent opportunity to focus on ESG investing and buy sustainability leaders.
  • Best Buy (BBY): A newly launched home pick-up recycling program will make it easier for customers to recycle old electronics.
  • Deere (DE): Announced a new joint venture that will improve productivity, growing more food using fewer resources.
  • iShares ESG Aware MSCI EAFE ETF (ESGD): Tracks the best ESG stocks.
  • Microsoft (MSFT): A new data center in Finland will provide carbonless surplus heating to the surrounding region.
  • Novo Nordisk (NVO): Positive results for a once-weekly insulin treatment will improve the quality of life for diabetes patients.
  • Procter & Gamble (PG): Developed a 3-in-1 product to clean, sanitize, and defend against 99.9% of bacteria and viruses for up to 24 hours.
  • Xylem (XYL): Developed a new wastewater treatment solution that will help improve nutrient removal, save energy and reduce costs.
ESG Investing - ESG Investing: 7 Profitable Stock Picks for the Socially Responsible

Source: Shutterstock

Environmental, social, and governance (ESG) investing is often used interchangeably with sustainable and socially responsible investing.

To help investors choose ESG shares, MSCI (NYSE:MSCI), a leading supplier of investment decision support tools, provides the MSCI ESG Rating.

These lettering system assigns the coveted AAA rating to the best ESG stocks and funds. The classification shows how a company manages financially relevant ESG investing risks and opportunities. Rating metrics include climate change impact, diversity, inclusion, equity, and business ethics.

ESG adoption is on the rise, fueled by client demand and the desire to make a positive impact,” According to the 2022 Capital Group ESG Global Study. “There is a wider recognition among the investor community that companies with good sustainable credentials are more likely to outperform.

Yet, even ESG investing has not been immune to declines in the current bear market. The S&P 500 ESG index has fallen over 20% year-to-date (YTD). However, the rise of socially responsible investing is undeniable.

With that information, here are the seven best ESG stocks to include in your portfolio in July.

BBY Best Buy $72.70
DE Deere $302.00
ESGD iShares ESG Aware MSCI EAFE ETF $63.23
MSFT Microsoft  $264.66
NVO Novo Nordisk $111.41
PG Procter & Gamble $144.00
XYL Xylem $78.68

Best Buy (BBY)

bed bath & beyond storefront (BBBY)
Source: Shutterstock

52-week range: $69.07 – $141.97

Best Buy (NYSE:BBY) is one of the largest consumer electronics retailers in the world, with over 1,000 stores across the U.S. and Canada. The retailer holds an AAA ESG rating from MSCI.

In late May, Best Buy announced Q1 FY23 financials. Revenue was $10.6 billion, compared to $11.6 billion the year before. Diluted EPS was $1.57, compared to $2.23 the previous year. Cash and equivalents totaled $640 million.

As the nation’s largest retail collector of e-waste, Best Buy recently launched a home pick-up electronic recycling service. The Best Buy “Standalone Haul-Away” service will remove and recycle up to two large products along with select smaller products.

BBY stock has fallen 39% YTD, yet the dividend yield is a generous 5%. Shares are trading at 8.33 times forward earnings and 0.34 times sales. Meanwhile, the 12-month median price forecast for BBY stock stands at $88.

Deere (DE)

a green John Deere tractor
Source: mark stephens photography / Shutterstock.com

52-week range: $295.59 – $446.76

Deere (NYSE:DE) is one of the largest manufacturers of agricultural, construction, and forestry equipment, with roots going back 180 years. The company employs artificial intelligence (AI), machine learning, and computer vision applications to boost yields and reduce costs.

All these steps understandably help enhance overall sustainability in agriculture, which is a significant component in ESG investing. Deere holds an A rating from MSCI.

On May 20, Deere issued Q2 FY’22 results. Net sales and revenues came in at $13.370 billion, up 11% YOY. Net income per share was $6.81 compared to  $5.68 for the same period last year.

Deere announced a joint venture with GUSS Automation, a pioneer in semi-autonomous vineyard and orchard sprayers.

Through this venture that focuses on innovation and technology, the two companies aim to help farmers be more productive, growing more food using fewer resources.

DE stock has lost almost 14% YTD. Shares are priced at 14.1 times forward earnings and 2.3 times sales, while the dividend yield is 1.4%.

Wall Street’s 12-month median price forecast for DE stock is at $417.

iShares ESG Aware MSCI EAFE ETF (ESGD)

ETFs: A stock market ticker tape that reads "ETFs." representing international etfs
Source: Shutterstock

52-week range: $61.36 – $82.63

Dividend yield: 4.05%

Expense ratio: 0.20% per year

The iShares ESG Aware MSCI EAFE ETF (NASDAQ:ESGD), is a great entry to ESG investing.

It invests in developed market companies with positive ESG properties. The fund was first listed in June 2016.

ESGD, which currently holds 448 stocks, holds the MSCI ESG fund rating of AAA. In terms of sectoral allocations, we see financials (17.23%) industrials (14.98%), health care (12.85%) and consumer discretionary (11.08%), among others.

The top 10 stocks comprise close to 14% of $6.666 million in net assets.

Among them are the nutrition company Nestle (OTCMKTS:NSRGY); semiconductor equipment manufacturer ASML (NASDAQ:ASML); Swiss pharma group Roche (OTCMKTS:RHBBY); and Denmark-based pharma company Novo Nordisk (NYSE:NVO).

ESGD is down over 20% year-to-date. Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 12.60x and 1.64x. InvestorPlace.com readers interested

Microsoft (MSFT)

Image of corporate building with Microsoft (MSFT) logo above the entrance.
Source: NYCStock / Shutterstock.com

52-week range: $246.44 – $349.67

Microsoft (NASDAQ:MSFT) is one of the “Big Five” technology companies, but also a great ESG investing opportunity.

It is best known for its Windows and Office software product lines, Surface computers, and the Xbox gaming system. Microsoft holds an AAA ESG rating from MSCI.

In late April, management released Q3 FY’22 earnings. Revenue came in at $49.4 billion, an 18% YOY increase. Diluted EPS was $2.22, compared to $2.03 the year before. Cash and equivalents totaled $12.5 billion.

Recently, Microsoft announced its intention to build a new data center region in Southern Finland.

In addition to providing data storage and cloud computing capabilities, this data center will also provide carbonless surplus heating to the surrounding region. It will be the world’s largest scheme to recycle the waste heat generated by servers.

So far in 2022, MSFT stock has lost 20%. Forward P/E and price-to-sales (P/S) numbers are 23.4x and 9.9x, respectively.

The dividend yield is 1%. Finally, the 12-month median price forecast for MSFT stock stands at $350.00.

Novo Nordisk (NVO)

Novo Nordisk logo on a corporate building
Source: joreks / Shutterstock.com

52-week range: $81.65 – $122.16

Novo Nordisk (NYSE:NVO) is a Danish pharmaceutical company that specializes in diabetes care.

The company maintains 16 production sites and 10 research and development (R&D) centers globally. Novo Nordisk holds an AAA ESG rating from MSCI.

In late April, Novo Nordisk reported Q1 metrics. Net sales came in at 42 billion Danish kroner (DKK), an 18% increase at constant exchange rates. Diluted EPS was DKK 6.22, compared to DKK 5.45 the year before.

Recently, company researchers announced positive results from clinical trials studying a new, once-weekly insulin treatment.

The results from two separate studies show that the once-weekly treatment was as effective as daily insulin injections. As a result, the treatment has the potential to become the ideal insulin for people with diabetes, initiating insulin treatment.

NVO stock is essentially flat YTD but appreciated 25.5% over the past year. Shares are trading at 32 times forward earnings and 11.7 times sales. The dividend yield is 1.5%. Lastly, the 12-month median price forecast for NVO stock is at $123.24.

Procter & Gamble (PG)

A Procter & Gamble (PG) distribution center in Vandalia.
Source: Jonathan Weiss / Shutterstock.com

52-week range: $131.94 – $165.35

Procter & Gamble (NYSE:PG) is one of the global leaders in packaged consumer products.

It operates in beauty, grooming, healthcare, home care, and family care segments. Procter & Gamble has an A rating from MSCI, making it a very attractive ESG investing play.

The consumer products giant issued Q3 FY’22 financial results on Apr. 20. Revenue was $19.4 billion representing an increase of 7% YOY. Diluted EPS was $1.33 compared to $1.26 in the previous-year quarter.

Procter & Gamble’s multi-purpose cleaner Microban 24 has been the first consumer product registered to kill bacteria and viruses that cause the flu and Covid-19 for up to 24 hours.

The company asserts that a 3-in-1 product able to clean, sanitize, and defend against 99.9% of bacteria and viruses for up to 24 hours.

Investors hope it will contribute to the top line as we see new variants of the virus that has affected our lives over the past two years.

So far in 2022, PG stock has fallen more than 11% but is supported by a 2.76% dividend yield. Shares are trading at 21.5 times forward earnings and 4.3 times sales. Meanwhile, the 12-month median price forecast for PG stock stands at $170.

Xylem (XYL)

xylem app
Source: IgorGolovniov / Shutterstock.com

52-week range: $78.92 – $138.78

Xylem (NYSE:XYL) is one of the world’s largest water technology providers, this ESG investing opportunity services municipal, residential, commercial, agricultural, and industrial sectors.

Xylem holds an AAA ESG rating from MSCI.

In early May, Xylem released Q1 financial results. Revenue was $1.27 billion, an increase of 1.3% YOY. Adjusted diluted EPS was 47 cents, compared to 56 cents the year before.

Management recently announced a new wastewater treatment solution, the Xylem Edge Control. This off-the-shelf suite of digital solutions can achieve treatment compliance targets. It simultaneously reduces energy consumption from aeration by up to 25%. 

XYL stock has dropped almost 33% YTD. Forward P/E and P/S numbers are 29.7x and 2.7x, respectively. The dividend yield is 1.65%. Finally, the 12-month median forecast is at $90.00.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


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