Stereotypically, the concept of bidding up publicly traded enterprises based on their environmental, social, and governance scores – the so-called ESG stocks – might seem an extremely risky proposition. That’s because we have this idea that doing good involves sacrificing capitalistic intent like achieving profitability. To some extent, it’s a reasonable assumption. After all, true charity doesn’t involve a cynical attempt to move up financially. However, some evidence indicates that ESG stocks to buy can also have a positive impact on the bottom line.
Increasingly, the public monitors indices such as ESG ratings to make more informed purchasing decisions. As well, the relevant millennial generation and the emerging Generation Z care deeply about environmental issues and other sustainability initiatives. Put another way, you don’t want to be the company ticking off your consumer base. Below are viable ESG stocks to buy.
|HST||Host Hotels and Resorts||$16.00|
One of the most well-recognized technology firms in the world, Microsoft (NASDAQ:MSFT) is an indelible presence in the business ecosystem. However, it’s also one of the top ESG stocks to buy. Notably, Microsoft committed that by 2030, the enterprise will be carbon negative. By 2050, the company seeks to remove its historical emissions since its founding in 1975.
Financially, Microsoft confirms that ESG investing doesn’t necessarily need to result in giving up all pretenses of profitability. First, the enterprise benefits from a strong balance sheet, as evidenced by its stout Altman Z-Score of 8.99. Also, the tech giant posts a three-year revenue growth rate of 17.4%, outpacing 71.17% of companies listed in the software industry. As well, Microsoft’s net margin pings at just over 33%. This stat ranks better than nearly 97% of the competition.
Finally, Wall Street analysts peg MSFT as a consensus strong buy. Their average price target comes out to $307.37, implying almost 8% upside potential.
Another example of ESG stocks trading in the software space, Intuit (NASDAQ:INTU) focuses on the financial services realm. It’s best known for its tax-preparation software TurboTax and QuickBooks. However, the company also attempts to do good in the world. Primarily, Intuit ranks high on corporate responsibility, supporting diversity, equity, and inclusion programs.
Financially, Intuit also delivers an attractive canvas. First, it enjoys a solid balance sheet, posting an Altman Z-Score of 8.17. This measurement indicates high fiscal stability and a low risk of imminent bankruptcy. In addition, Intuit features a three-year revenue growth rate of 20.4%, outpacing 75.55% of its software peers. Moreover, the company benefits from strong profit margins, particularly its net margin of 14.22%. This stat rises above 85.3% of the competition.
Lastly, covering analysts peg INTU as a consensus strong buy. Their average price target lands at $488.88, implying almost 10% upside potential.
IDEXX Laboratories (IDXX)
Based in Westbrook, Maine, IDEXX Laboratories (NASDAQ:IDXX) engages in the development, manufacture, and distribution of products and services for the companion animal veterinary, livestock and poultry, water testing, and dairy markets. One of the top ESG stocks, Idexx supports various positive initiatives, ranging from environmental sustainability to community services. In addition, the company features strong scores among various ESG ratings.
On the financial front, Idexx matches the prior ESG leaders with a stout Altman Z-Score. In this case, Idexx hit 15.62, indicating an extremely low risk of bankruptcy. Operationally, the company features a three-year book growth rate of 52.4%, outpacing 88.24% of firms listed in the medical diagnostics and research industry. Also, it’s consistently profitable year in, year out. In the trailing 12 months, Idexx’s net margin stands at 20.17%.
To close out, analysts peg IDXX as a consensus moderate buy. Their average price target hits $559.57, implying nearly 13% upside potential.
Hailing from Louisiana, Pool (NASDAQ:POOL) bills itself as the world’s leading distributor of swimming pool supplies, equipment, and related outdoor products. Attempting a recovery from the consumer economy fallout of 2022, POOL stock gained over 14% of equity value since the January opener. In the trailing year, it’s still down about 20%.
Nevertheless, fortunes might change as POOL ranks among the ESG stocks to consider. Featuring a commitment to governance protocols – including ethics and compliance – Pool also seeks to minimize its environmental footprint through energy efficiency solutions and waste reduction. As millennials and Gen Z continue to expand in purchasing power, these efforts should be appreciated.
Regarding the financials, Pool makes a case for investments tied to ESG growth. Operationally, its three-year sales growth rate pings at 25.6%, above 91.72% of the competition. Also, it’s consistently profitable. Turning to Wall Street, analysts peg POOL as a consensus moderate buy. Their average price target stands at $395, implying 15% upside potential.
NextEra Energy (NEE)
An obvious idea among ESG stocks to buy, NextEra Energy (NYSE:NEE) easily represents one of the ESG leaders thanks to its core business. An energy company, NextEra represents the largest electric utility holding firm by market capitalization, per its public profile. Featuring a vast network of wind and solar facilities, the company also operates generating plants powered by multiple means.
Naturally, NextEra represents a mainstay for ESG investing because of its commitment to clean energy generation. As well, its energy efficiency programs include bolstering transmission lines for both efficiency and resilience. Admittedly, NextEra could use some work in the financial department. For example, its balance sheet on paper doesn’t offer the most confident look.
However, like other utility plays, NextEra benefits from a natural monopoly. As a result, it enjoys consistent profitability. Looking to the Street, analysts peg NEE as a consensus strong buy. Overall, their average price target comes out to $91.73, implying over 16% upside potential.
Host Hotels & Resorts (HST)
Sitting within the broader lodging industry, Host Hotels & Resorts (NASDAQ:HST) might not be the first idea that comes to mind when targeting enterprises with strong ESG ratings. Nevertheless, HST might be an intriguing opportunity for contrarian market participants. A real estate investment trust that focuses on hotels, Host Hotels may benefit from relevancies from Gen Z.
According to a recent CNBC report, Gen Z consumers – who on average care about sustainability – tend to value experiences more so than prior generations. Therefore, they’re willing to spend on various excursions despite being short on cash. Sure enough, the company commits to various environmental initiatives, which might attract this age cohort.
Financially, HST represents a higher-risk profile because of its negative long-term sales trend resulting from the Covid-19 impact. However, it might be undervalued based on operating cash flow. Lastly, analysts peg HST as a consensus moderate buy. Their average price target stands at $20.09, implying nearly 24% upside potential. Thus, it’s an interesting example of ESG stocks if you can handle the risk.
An extraordinarily relevant idea among ESG leaders, Bunge (NYSE:BG) is an agribusiness and food company. Specializing in the international soybean export industry, Bunge also targets food processing, grain trading, and fertilizer manufacturing. Despite its pertinence, BG slipped half a percent below parity for the year. In the past 365 days, it fell more than 18%.
As one of the top ESG stocks, Bunge cares deeply about sustainability issues. According to its website, management makes decisions across its value chain built on the foundations of ethical leadership, accountability, and environmental stewardship.
On the financial spectrum, Bunge delivers decent stability in the balance sheet with an Altman Z-Score of 4.58. Also, its three-year revenue growth rate pings at 14.7%, above 76.43% of its peers. Notably, the market prices BG at a forward multiple of 8.12. As a discount to projected earnings, Bunge ranks better than 87.78% of the competition. On a final note, analysts peg BG as a consensus moderate buy. Their average price target stands at $119.60, implying nearly 26% upside potential.
On the date of publication, Josh Enomoto 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.