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5 ESG Stocks to Buy as Climate Risk Takes Center Stage

Zacks Equity Research

Rapid climatic change and increasing environmental disasters have grabbed investors’ attention making them more interested in climate change-related investments. And why not? The recent Australian bushfires have taken 25 lives, and thousands of animals have perished with more than 12 million acres burned to dust. Smokes have reached as far as South America and health issues are bothering the entire continent.

Last year, similar destructive fires ravaged the Amazon and this year Indonesia's devastating floods killed more than 60 people and destroyed properties. These extreme weather events are pressing concerns for not only climate activists but are also a “wake-up call” for industrialists and investors.

The president of the Federal Reserve Bank of San Francisco acknowledged the climate change risks and commented that “higher sea levels, heavier rainfalls, dryer conditions, and the associated fallout can cause catastrophic losses to property and casualty insurers.”

Climate Change & Investment Connection

According to an investor survey conducted by Bank of America Securities, millennial investors are most interested in impact investing, with nearly 90% making it their first choice. And impact investing is based on the environmental, social and governance (ESG) criteria.

Additionally, the world’s largest asset manager, BlackRock, has become the latest signatory to Climate Action 100+, which is an influential big-money pact that urges companies ranging from fossil-fuel producers to consumer-product conglomerates to become carbon-neutral by 2050. Though this initiative is at its adolescence, greenhouse-gas emitters are taking actions to make a significant reversal of this man-made climate change.

Banks are creating pressure on companies having a high carbon footprint. For example, Goldman Sachs is tightening its lending on certain fossil fuel projects that include Arctic drilling. Further, the banking giant has pledged to invest $750 billion through 2030 in fighting climate change.

Why ESG Stocks?

This year, climate change will play a crucial role in investment decisions driven by responsible investing. Now, responsible investing is the integration of environmental, social and governance (ESG) factors into investment processes and decision-making.

Notably, ESG investment has carved a niche in stock markets globally. But in the coming decade, it is expected to become a much broader and more critical investment strategy, with millennials being the prime drivers. In fact, Bank of America estimates that there will be investments in more than $20 trillion of asset growth in ESG funds in the next two decades.

Moreover, the track record of ESG and clean energy funds has provided a positive report to gain investors’ confidence. iShares Global Clean Energy ETF (ICLN) and First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) soared nearly 39% and 44.8%, respectively, last year and surpassed the S&P 500 Index and the Nasdaq Composite. Additionally, iShares ESG MSCI USA Leaders ETF (SUSL) has accrued $1.85 billion and risen 17% since its launch in May 2019.

What’s more, M&A deals also highlight this space along with increased focus on climate change risk assessment. In October 2019, MSCI Inc.’s subsidiary MSCI Barra (Suisse) Sàrl completed the acquisition of Zurich-based environmental fintech and data analytics firm. The firm specializes in climate change scenario analysis.

5 Stocks to Buy

Recent environmental disasters have encouraged investors to opt for ESG stocks. Hence, these five shortlisted stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) are poised to return well on investments.

Applied Materials, Inc. AMAT provides manufacturing equipment, services and software to the semiconductor, display and related industries.

The company has a very active program called design for environment and is modifying materials at atomic levels and on an industrial scale that applies to both glass substrates and silicon wafers used in semiconductors.

The company’s expected earnings growth rate for the current year is 24% against the Zacks Semiconductor Equipment - Wafer Fabrication industry’s projected earnings decline of 6.2%. The Zacks Consensus Estimate for this Zacks Rank #1 company in current-year earnings has been revised 2.5% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Keysight Technologies, Inc. KEYS provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor, electronic and education industries.

The company inspires graduate research work with cutting-edge research and innovation across countries, judges candidates on metrics of innovation, manufacturability and impact to environment.

This Zacks Rank #1 company’s expected earnings growth rate for the current year is nearly 10% against the Zacks Electronics - Measuring Instruments industry’s projected earnings decline of 17.4%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 5.9% upward over the past 60 days.

NVIDIA Corporation NVDA operates as a visual computing company, that offers processors, which include GeForce for PC gaming, GeForce NOW for cloud-based game-streaming service and much more.

The company is working on the energy efficiency of its products throughout the research, development and design processes.

The company’s expected earnings growth rate for the fiscal fourth-quarter is more than 100% compared with the Zacks Semiconductor - General industry’s projected earnings growth of 8.9%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.5% upward over the past 60 days.

The Procter & Gamble Company PG provides a range of beauty, grooming, health care, fabric and home care, and baby, feminine and family care products.

The company is constantly working toward restricting microfiber release. Every load of washing releases millions of microfibres that are flushed down the drain, and gradually ends up in beaches and oceans where they remain for years and disturb sea creatures’ food chain.

Procter & Gamble, a Zacks Rank #2 company, has an expected earnings growth rate of 9.3% for the current year against the Zacks  Soap and Cleaning Materials industry’s projected earnings decline of 0.5%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 2.1% upward over the past 90 days.

General Mills, Inc. GIS manufactures and markets branded consumer foods. Among the many sustainability initiatives of the company, its Cheerios brand uses regenerative agriculture and organic farming to source ingredients for products including the legacy cereal brand.

The company’s expected earnings growth rate for the current year is 5.3% compared with the Zacks Food - Miscellaneous industry’s projected earnings growth of 1.5%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.9% upward over the past 60 days. General Mills flaunts a Zacks Rank #2.

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Keysight Technologies Inc. (KEYS) : Free Stock Analysis Report
 
General Mills, Inc. (GIS) : Free Stock Analysis Report
 
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Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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