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Stocks  | February 26, 2020

Typically, investment considerations for stocks to buy involve established indicators, such as valuation or technical momentum. Increasingly, though, the “ESG stock” or a publicly traded company that ranks highly in addressing environmental, social and governance issues, is becoming attractive.

There are several reasons why socially responsible investing has increased in visibility over the years. First, the concept isn’t a new one. As Robert Johnson, a professor of finance at Creighton University’s Heider College of Business, explained in an email to InvestorPlace:

“While the spotlight is currently shining brightly on ESG investing, forms of socially responsible (or impact) investing have been around for decades. It initially began as screening out companies that produced products and services considered detrimental such as companies producing alcohol, tobacco and firearms. Before the ending of apartheid in South Africa, some SRI advocates were screening out companies headquartered, or even doing business, in South Africa.”

Second, among millennial investors, most will likely include at least one ESG stock among their portfolio of stocks to buy. According to a survey from Allianz, 66% of millennials are interested in socially responsible companies. Since Generation Y is now the largest generation in the U.S. workforce, their opinion matters.

Third, it’s not just young investors that are including ESG names among their stocks to buy. Ryan Murphy, head of decision sciences at Morningstar Investment Management, stated that many people care about sustainability, adding that “This is not just a fringe preference.”

Finally, one note. Johnson reminds us that what one considers an ESG stock may not resonate with others. Thus, consider these stocks to buy as reflective of what many, but certainly not all investors find important.

ESG Stocks to Buy: Microsoft (MSFT)

Historically, Microsoft (NASDAQ:MSFT) ranks high as an ESG stock based on the philanthropy of co-founder Bill Gates. The Bill & Melinda Gates Foundation is a shining example of how corporate tycoons don’t have to act like tyrants. Of course, MSFT stock isn’t merely dependent on legacy achievements.

Although Microsoft is one of the world’s biggest brands, it recognizes the importance of environmental sustainability. As such, the company has multiple initiatives, ranging from the reduction of its carbon footprint to supporting green energy solutions and recycling efforts.

Best of all, MSFT stock is a monster. Although shares have taken a recent dip due to the coronavirus from China, the outbreak can’t take away from the company’s tremendous progress over the past several years. With a resurgent hardware business and a very viable cloud computing division, you can feel good about putting Microsoft on your list of stocks to buy.

Nvidia (NVDA)

If you’re an avid gamer or a cryptocurrency miner, you don’t think about Nvidia (NASDAQ:NVDA) as an ESG stock. However, Nvidia truly takes leadership in both environmental and social issues. Perhaps a surprise to many, the company has a very strict policy regarding conflict minerals.

According to its statement, NVDA has due diligence policies to “reasonably assure that minerals from the Democratic Republic of Congo and adjoining countries (DRC), including gold, tantalum, tungsten and tin (3TG), used in our products do not directly or indirectly finance or benefit armed groups in the DRC.”

Personally, I wasn’t aware of this so I must give props to NVDA stock.

Just like Microsoft, NVDA stock is an investment you can feel good about. Primarily, the underlying technology firm is one of the world’s top semiconductor manufacturers. Additionally, it’s breaking new ground in deep machine learning and other relevant industries of tomorrow. That the company does it the right way is more reason to have it among your stocks to buy.

NextEra Energy (NEE)

As a utility firm that’s also the world’s largest producer of wind and solar energy, NextEra Energy (NYSE:NEE) hits all three components of an ESG stock. First, NEE stock stands out among traditional energy players in that the underlying business has been committed to reducing foreign oil dependency for nearly two decades.

Such concerns have played out in ugly ways throughout the years. With a shift toward renewables, NextEra can theoretically ease the volatility that we experience in our current energy paradigm. As well, the company — as a domestically focused entity — has created thousands of high-paying jobs for Americans. This is a way of putting America first without controversy.

Finally, NextEra is committed to accountability and transparency through every cog in its operations. Admittedly, this space has produced several winning stocks to buy but not necessarily in a pleasant manner. With NEE stock, though, you can have your cake and eat it too.

Gilead Sciences (GILD)

Right now, you probably wouldn’t expect to see Gilead Sciences (NASDAQ:GILD) in a gallery of socially responsible stocks to buy. Unfortunately, the broader pharmaceutical sector has suffered terribly due to various controversies. Arguably the most vexing for the public is the various price-gouging scandals. Understandably, many people feel that big pharmaceuticals are advantaging their pain for profits.

Because of the collective anger, names like GILD stock have experienced significant volatility. Last year, shares went sideways in a frustrating consolidation pattern. However, Gilead deserves credit for its commitment to drug accessibility, especially for developing nations. In areas where budgets are tight, Gilead deploys a tiered system that “takes account of ability to pay, as measured by gross national income per capita, and disease burden.”

Although the pharma sector has a black eye, this may be a contrarian gift for GILD stock. Due to the company’s socially responsible and sensitive practices, it may attract more individuals seeking ethical stocks to buy.

Home Depot (HD)

Last year, Home Depot (NYSE:HD) caught fire on social media because co-founder Bernie Marcus vocally supported President Donald Trump’s re-election campaign. However, I didn’t think it was right that people blasted Marcus merely for expressing an opinion: We are allowed to have those in this country still, right? More importantly for HD stock, the controversy can’t overshadow Home Depot’s commitment to ethical conduct.

As you know, the company specializes in the home goods and renovation industry. And that equates to a ton of wood and wood-based products. Of course, the temptation is to cut corners and exploit developing nations for their natural resources. Instead, Home Depot has gone the other way, sourcing most of their wood from right here in the U.S.

Another factor to consider HD stock for your list of stocks to buy is the underlying company’s efforts toward diversity. Every time I shop at Home Depot, I can’t help but notice that management focuses on nothing but employee work ethic. This aligns very well with the millennial generation, which works to uplift a variety of voices and cultures.

Emcor Group (EME)

Generally speaking, you wouldn’t peg a construction firm as an ESG stock. However, Emcor Group (NYSE:EME) goes well against the grain, embracing all three components of environmental, social and governance issues. Therefore, if you prioritize ethical considerations for your stocks to buy, Emcor is one to put high on your list.

First, Emcor has adopted several environmentally sustainable practices in its operations. This includes incorporation of green energy solutions wherever feasible. Additionally, the company leads in reducing waste as well as monitoring its carbon footprint. It’s one of the few major organizations walking the walk, making EME stock a desirable asset among principled investors.

Second, Emcor has a strong commitment to worker safety, initiating several safety-related standards and protocols. Moreover, management is committed to gender pay equity, plus removing acts of exploitation in its global supply chain.

Finally, the construction firm openly encourages employees to stand up whenever they recognize a breach in corporate ethics. It’s rare to see this level of governance transparency, which is all the more reason why EME stock stands out.

Nike (NKE)

When it comes to seeking out ethical stocks to buy, Nike (NYSE:NKE) is a controversial pick. Indeed, NKE stock resonates with Johnson’s sentiments: What counts as an ESG stock for one person may not fit another’s definition.

In this case, social justice advocates have pressured Nike for years regarding accusations of sweatshop labor. Persistently, management countered that it had no control over sub-contracted work. To be fair, Nike has made significant efforts to better manage the practices in its supply chain. Still, it’s not a consistent message. For instance, in 2017, the athletic apparel maker reneged on its commitment for transparency to a civil society organization.

On the other end of the spectrum, NKE stock wins out on the environmental sustainability segment. For example, the company has crafted Nike Air soles with at least 50% recycled manufacturing waste since 2008. Furthermore, these soles are made with 100% renewable energy.

Hasbro (HAS)

With my last idea for stocks to buy, I’m going to go with the riskiest name, toymaker Hasbro (NASDAQ:HAS). Obviously, HAS stock is not a name for the risk averse. Shares dropped 9% on the Feb. 21 session. Admittedly, the volatility wasn’t completely surprising, given the company’s exposure to China, which is reeling from the coronavirus.

However, if sustainability ranks highly for your portfolio considerations, then you may want to pick up the discount in HAS stock. Frankly, Hasbro is one of the most committed to environmental and social concerns because it has to be. Among the company’s green endeavors are sustainable product packaging, eco-efficient logistics and conservation protocols.

Now, the economic impact of the coronavirus is something you must be vigilant on. However, HAS stock benefits from a mixture of both secular and discretionary demand. Toys may not be necessary to us, but to our children, they’re an integral part of the growing process.

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