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ESG Stocks Remain Resilient to Virus Slump: 5 Top Picks

Zacks Equity Research

The novel coronavirus has forced many businesses to halt operation as governments strive to restrict its spread. While companies dealing in essential products and services like consumer staples, utilities and medical stay open, a few engaged in practicing sustainability have not only survived the slump, but also outperformed the broader market.

By practicing sustainability here, we refer to the environmental, social and corporate governance (ESG) factor. These companies have solid ESG principles, and hence lesser financial risks, predominantly due to their focus on environment, employees and supply chain.

Why ESG Stocks Outperform?

What gives boost to a strong ESG company is better management, which earns strong long-term returns. Management’s primary focus lies on minimizing environmental footprint, promoting good employee relations and creating resilient governance structures. This helps business to be proficient even in times of economic downturn.

Even before the coronavirus pandemic had hit the economy, investors were concerned about climate change and employee well-being. Given the coronavirus outbreak, companies can now expect investors questioning them regarding resilience and contingency planning, which includes employee sick leave policies, disaster preparedness and more.

In fact, availability of data-driven intelligence, thanks to artificial intelligence (AI) and machine learning help investors compare actual and public reporting of a company.  For instance, AI can now analyze social media posts to know what employees are talking about their company’s response to the pandemic, helping investors to determine company disclosures.

Truvalue Labs, for example, uses AI to uncover timely ESG data on companies and has already identified material issues specific to the novel virus outbreak. This includes employee health and safety, work place practices and supply-chain management, at large.

Moreover, ESG investments have fared better than the overall market, even as stock market plunged due to virus scare. As per Morningstar, 62% of ESG-focused large-cap equity funds outdid the broader market in the torrid month of March. Additionally, Bank of America Merrill Lynch research report states that between Feb 19 and Mar 25, the sharpest period of index decline, ESG stocks have surpassed the S&P 500 by five percentage points.

What’s more? The scope of “sustainability” has widened. Hence, sustainable opportunities no longer encompass just battery packs or solar panels that only address climatic change. Now, the theme is more inclined toward less capital-intensiveness, helping the business to insulate from market shocks. Companies can now direct capital toward like social needs and address a company’s responsibility toward employees.

5 Stocks to Buy

Given the recent slump caused by the novel coronavirus, investors should 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eli Lilly and Company LLY discovers, develops, manufactures and markets pharmaceutical products. The company’s expected earnings growth rate for the current year is 12.8% compared with the Zacks Large Cap Pharmaceuticals industry’s projected earnings growth of 7.1%. The Zacks Consensus Estimate for this Zacks Rank #1 company in current-year earnings has been revised 0.6% upward over the past 60 days.

Microsoft Corporation MSFT develops, licenses and supports software, services, devices and solutions. The company’s expected earnings growth rate for the current year is 19.8% against the Zacks Computer - Software industry’s projected earnings decline of 4.9%. The Zacks Consensus Estimate for the current-year earnings has been revised 1.3% upward over the past 60 days. Microsoft carries a Zacks Rank #2.

NVIDIA Corporation NVDA, which holds a Zacks Rank #2, operates as a visual computing company. The company’s expected earnings growth rate for the current year is 28.7% against the Zacks Semiconductor - General industry’s projected earnings decline of 21%. The Zacks Consensus Estimate for the current-year earnings has been revised 7.8% upward over the past 60 days.

DexCom, Inc. DXCM designs, develops, and commercializes continuous glucose monitoring systems. The company’s expected earnings growth rate for the current year is 21.2% compared with the Zacks Medical - Instruments industry’s projected earnings growth of 6.8%. The Zacks Consensus Estimate for the current-year earnings has been revised 21.9% upward over the past 90 days. DexCom holds a Zacks Rank #2.

Adobe Inc. ADBE operates as a diversified software company. Its expected earnings growth rate for the current year is 24.4% against the Zacks Computer - Software industry’s projected earnings decline of 4.9%. The Zacks Consensus Estimate for the current-year earnings has been revised 0.1% upward over the past 90 days. Adobe carries a Zacks Rank #2.

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Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
DexCom Inc (DXCM) : Free Stock Analysis Report
 
Eli Lilly and Company (LLY) : Free Stock Analysis Report
 
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
 
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