The stock market is an ever-evolving giant that over the years has taken on many new forms. Investors in the 1980s had no idea what a dot-com boom was going to be. Similarly, those investing in the 1990s and early 2000s had little idea of cloud computing or the Internet of Things.
Now, already two decades into the new century, one of the biggest new areas for investors are stocks that are in environmental, social and governance, or ESG, basket. While not a new technology or health care breakthrough, conscientious investors will look for companies that have the traits that more closely represent their personal aspirations.
ESG refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help investors better determine the future financial performance of companies (return and risk).
The analysts at RBC have released their top picks in the ESG arena. They noted this in the research report:
The 2020 Global ESG Best Ideas list consists of 39 Outperform rated Global equities in our coverage universe that also meet the criteria determined by the Sustainable Finance Group’s proprietary ESG framework. This framework incorporates ESG opportunities, risks and momentum factors using structured and unstructured data from three external data providers. This list was not constructed as a portfolio, but rather is a list of high-conviction names that also demonstrate ESG leadership.
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We screened the list looking for the top well-known companies that offer investors solid investment opportunities, not just for 2020 but for years to come. Again, all are rated Outperform at RBC. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Colgate-Palmolive
This top dividend payer is also a very safe consumer staples play for investors. Colgate-Palmolive Co. (NYSE: CL) continues to deliver solid execution and is one of the best-positioned companies in its sector, given its strong brands in attractive categories, particularly oral care. Colgate is one of the most valuable brands in the world.
Over half of Colgate’s total revenues (52%) are derived in faster-growth emerging economies, and the company maintains leading or near-leading market shares across Brazil, Russia, India and China. While those have slowed over the last year, a pickup in growth could be coming, especially with a very weak dollar making products attractive overseas.
Colgate-Palmolive stock investors receive a 2.38% dividend. The RBC price target for the stock is $88, and the Wall Street consensus target is $74.92. Shares closed Wednesday’s trading at $73.81 apiece.
Gilead Sciences
This stock is trading a very reasonable 9.36 times estimated 2020 earnings and may have a coronavirus treatment. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The acquisition of Kite Pharmaceutical in 2017 allowed for entry into the CAR-T space, indicating a renewed focus in oncology.
The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.
The company’s remdesivir may prove to be a promising COVID-19 treatment, and the World Health Organization labeled it as “the most promising” antiviral during the early days of the outbreak. But its effectiveness won’t be known until a slate of clinical trials reads out and more comprehensive data is obtained.
Investors receive a 3.69% dividend. RBC has an $88 price target, while the consensus target is $80.58. Gilead Sciences stock closed at $73.76 on Wednesday.
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Lowe’s
This company has a low 6% of foreign sales, which has helped in a strong-dollar scenario. Lowe’s Companies Inc. (NYSE: LOW | LOW Price Prediction) is a leading home improvement retailer with more than 2,000 stores in North America. The company has tempered its new store opening plans and is focusing investments on technology and e-commerce capabilities, in addition to improving its retail store productivity.
Lowes offers products for maintenance, repair, remodeling and home decorating. It provides home improvement products under the categories of kitchens and appliances, lumber and building materials, tools and hardware, fashion fixtures, rough plumbing and electrical, lawn and garden, seasonal living, paint, home fashions, storage and cleaning, flooring, millwork, and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
The dividend yield is 1.62%. The $136 RBC price target is lower than the consensus target of $138.60. Lowe’s stock was last seen trading at $135.65, up almost 3% on Wednesday.
Microsoft
This top old-school software and cloud technology stock has been posting all-time highs and has a massive $133.8 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses, and supports a wide range of software products. The company has transformed its business model from a component driven model (PC, server) to one driven by the need for cloud capacity. It is also considered one of the best companies to work for.
Many Wall Street analysts agree that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service.
Some analysts maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in the 2019 and early 2020 earnings reports, and it will remain a growing part of the software giant’s earnings profile.
Microsoft reported strong fiscal second-quarter results across the board, with Azure accelerating to an impressive 64% year-over-year growth rate from 63% last quarter. Total revenue growth was 15%, and management guided double-digit revenue growth and 2% of operating margin expansion in fiscal 2020.
The dividend yield is 1.05%. RBC has set its price target at $195. The consensus target is $200.75, and Microsoft stock closed at $194.24.
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PepsiCo
This top consumer staples stock fits the bill for worried investors. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.
The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as the soon to be changed Aunt Jemima mixes and syrups, and Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.
Pepsi’s North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices. It is one of the companies that helped Americans survive the pandemic.
Holders of PepsiCo stock receive a 2.85% dividend. RBC’s $153 price objective is above both the $143.29 consensus target and the most recent close at $131.76.
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Again, the ESG group represents a new attitude among investors about how companies should be run. While perhaps not as significant as artificial intelligence or self-driving electric vehicles, it speaks volumes about the evolution of investors and probably will dominate discussion and investment choices in the years to come.
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