At first glance, eco-friendly stocks seem a great idea for the feels but not so much for the portfolio. After all, doing the right thing in many cases involves self-sacrifice. That’s not the most helpful idea when you’re dealing with the sharks on Wall Street. Still, sustainable stocks benefit from one critical age cohort: Generation Z.
According to a NielsenIQ study, 78% of U.S. consumers overall state that a sustainable lifestyle is important to them. Nevertheless, a GfK Consumer Life report shows that over half (53%) of these consumers think more sustainable products cost too much. On the surface, the latter statistic seems to bode poorly for eco-friendly stocks.
However, Gen Z is throwing everything for a loop. Per a Forbes article, the vast majority of this cohort prefers to buy sustainable brands. Also, one study found that 90% of Gen Z members made changes in their lives to align with sustainability practices. These folks not only talk the talk, they walk the walk.
Basically, if you’re not eco-friendly, you’re risking losing business with the emerging generation. On that note, below are compelling sustainable stocks to consider.
Waste Connections (WCN)
By the looks of its corporate identity, Waste Connections (NYSE:WCN) might not seem like the most eco-friendly stocks available. However, the company plays a significant role in the broader green directive. Yes, it’s involved in waste management, which is a dirty business (that someone has to do). But related to the underlying topic, Waste Connections also promoted nationwide recycling initiatives. As well, it offers renewable natural gas (RNG) facilities.
Another aspect that makes WCN one of the intriguing sustainable stocks to consider is its financials. Contrary to the stereotype of sustainable organizations, Waste Connections prints a three-year revenue growth rate of 11.1%, above 62% of its peers. In addition, it’s consistently profitable, affording much confidence for investors. Plus, it rarely misses regarding its per-share profitability targets.
In fairness, WCN does trade at a rich multiple of 45.6X. However, the company’s return on invested capital (ROIC) – which tells us how efficiently it converts capital to profitable investments – comes in at 6.56%, above almost 64% of rivals.
Levi Strauss (LEVI)
Without any context, Levi Strauss (NYSE:LEVI) seems a very odd proposition for eco-friendly stocks. Everybody knows that Levi Strauss is one of the top fashion brands in the world. But a sustainability powerhouse? That might seem like a stretch until you consider how the company is embracing the broader green directive. In particular, it’s committed to the circular economy.
According to the European Parliament, the circular economy represents a model of production and consumption. This involves “sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible.” Regarding Levi Strauss’ role, the company collaborates with partners to explore garment recycling and reuse initiatives.
Notably, InsightAce Analytic reports that the circular economy could expand at a compound annual growth rate (CAGR) of 21.59% between 2023 and 2031.
Contrary to some misconceptions, going sustainable can be profitable too. In fact, Levi Strauss enjoys solid margins across the board. Thus, it’s one of the top eco-friendly stocks to consider.
Microsoft (MSFT)
A multinational technology corporation, Microsoft (NASDAQ:MSFT) really needs no introduction. If you use a PC or do any kind of work on a computer, chances are, you interface with a Microsoft protocol or platform. However, MSFT should also deserve attention and respect as one of the top sustainable stocks. Indeed, the company forwards several sustainability initiatives that serve as inspiration for us all.
Per its website, Microsoft aims to be carbon-negative by 2030, not just neutral. Also, by the same year, the company will be water-positive. That means it will replenish more water than it uses. As well, by the start of the next decade, it will implement a zero-waste footprint. Finally, by 2050, the technology stalwart will remove its historical emissions since its founding in 1975.
And if you think that eco-friendly stocks don’t pay, just look at its 52-week return. Yeah, Microsoft tends to be boring but nothing was boring about its 2023 performance. Enticingly, analysts still anticipate more share growth, rating MSFT a strong buy with a $429.25 price target.
Honeywell (HON)
A multinational industrial conglomerate, Honeywell (NASDAQ:HON) primarily operates in four areas of business: aerospace, building automation, performance materials and technologies, and safety and productivity solutions. Because of its vast footprint and relevancies, it’s practically inevitable that Honeywell brings go-green solutions to the table. It’s not a pure-play example of traditional eco-friendly stocks but it gets the job done.
Perhaps the most tangible benefit that Honeywell offers for our planet is its technologies in the renewables and energy storage solution markets. Through its myriad services – ranging from commercial/industrial operations, independent power production facilities, and the cost-effective operations of utilities – Honeywell is an indispensable component of the wind and solar ecosystem. As well, it forwards advanced acumen in the battery energy storage system industry.
Now, the one conspicuous drawback for HON is its choppiness. To be fair, throughout the past 52 weeks, it’s been all over the map. That said, investors will likely appreciate the conglomerate’s consistent profitability. Also, its ROIC stands at 13.55%, above nearly 90% of its rivals.
Xylem (XYL)
As a water technology firm, Xylem (NYSE:XYL) makes an intuitive case for sustainable stocks. While about 71% of the Earth’s surface is covered in water, very little of it is drinkable. In fact, National Geographic points out that only about 3% of the Earth’s water is fresh water. And within this tiny group, only about 1.2% can be used as drinking water.
The message couldn’t come in clearer: we need to be good stewards of the world’s most precious resource. Fortunately, Xylem’s multivariate business – which encompasses infrastructure (i.e. clean water delivery, wastewater management) and applied services (i.e. residential and commercial building solutions) – can help move the needle.
Enticingly, Xylem offers digital solutions to help bring about sustainability. For example, through the use of advanced sensors and new technical infrastructures, Xylem can facilitate high levels of resource efficiencies.
While XYL isn’t the cheapest idea out there with a trailing-year multiple of 45.48X, it consistently prints net income on an annual basis. As well, it enjoys above-average margins, making it a top idea for eco-friendly stocks.
NextEra Energy (NEE)
A classic case of eco-friendly stocks, NextEra Energy (NYSE:NEE) represents one of the top players in the renewable energy space. Per its website, NextEra represents one of the nation’s largest capital investors in infrastructure. In 2022, the company had planned between $50 billion to $55 billion in new infrastructure investments. While it’s supremely relevant in the go-green paradigm, NEE encountered significant volatility last year.
As you might suspect, the main culprit centered on rising interest rates. With borrowing costs suddenly elevated due to the Federal Reserve’s war against inflation, the headwind made it difficult for businesses to leverage debt and equity funding. As well, other entities within NextEra’s wide value chain also struggled amid economic challenges. Subsequently, investors seemingly couldn’t exit out of NEE fast enough.
Still, for speculators, the current valuation presents a relatively discounted opportunity. Trading at nearly 16X trailing-year earnings, NEE isn’t really objectively cheap. However, it’s far lower than the triple-digit multiple seen during the first quarter of 2022. Thus, it’s one of the sustainable stocks that could be worth a bite.
Unilever (UL)
A British multinational consumer goods company, Unilever (NYSE:UL) is best known for its many popular brands, which range from Axe, Dove, Ben & Jerry’s and Hellman’s, among many others. However, a perhaps lesser-known angle of its business is the company’s focus on sustainability. Indeed, Unilever spearheads multiple initiatives that cover the whole spectrum of environmental, social and governance (ESG) directives.
One area that should be highlighted is Unilever’s mission to completely rethink plastic. According to industry resource Supply Chain Solutions Center, “[p]lastic packaging is extremely wasteful and impacts earth’s ecosystems, on which we depend. Due to poor product design and lack of political infrastructure, the majority of plastic waste is sent to landfills or disposed of into the environment.”
Among the 9.2 billion tons of plastic that have been produced, only about 9% has been recycled properly. Unilever would like to shift this narrative in a positive direction, committing to halving the amount of virgin plastic it uses in its packaging by 2025. It’s an ambitious target but analysts have recently latched onto it, making it one of the eco-friendly stocks to buy.
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.
