In this article, we will take a look at 10 cheap ESG stocks to buy now.
ESG investing is investing in a way that considers environmental, social, and governance issues. The term is often interchangeably used with ‘sustainable investing’ or ‘socially responsible investing’.
In terms of the environmental issues, investors consider whether a company helps conserve and protect the natural environment. In terms of social issues, investors consider whether a company has good relationships with employees, customers, and communities. Finally in terms of the governance aspect, investors consider whether a company has standards for company leadership and offer risk controls.
ESG investing is a big trend on Wall Street.
According to PwC, “Asset managers globally are expected to increase their ESG-related assets under management (AuM) to US$33.9tn by 2026, from US$18.4tn in 2021. With a projected compound annual growth rate (CAGR) of 12.9%, ESG assets are on pace to constitute 21.5% of total global AuM in less than 5 years.”
2022
Given investors focus on areas that don’t necessarily generate the highest returns, ESG investing might not match the broader market return, especially if their fees are higher than the average.
Nevertheless, there are some ESG stocks that trade for attractive valuations given the market decline in 2022.
With the high inflation, the Federal Reserve has raised interest rates six times this year alone and many analysts think the U.S. central bank will increase rates even further.
As a result of the substantial interest rate increases, the broader market indexes have declined signficantly in 2022 and some stocks trade for relatively low valuations that make them cheap.
If economic data doesn’t meet expectations, there could still be more downside in the near to medium terms. Given the uncertainty, it could be a good idea for long term investors to own a well diversified portfolio of stocks across many different sectors.
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Methodology
For our list of 10 Cheap ESG Stocks to Buy Now, we took 10 stocks with a forward P/E of under 15 that were among Vanguard ESG U.S. Stock ETF (ESGV)’s top 33 holdings as of 11/8/2022 in terms of % of the fund.
Using the collective wisdom of hedge funds, we ranked the 10 based on the number of hedge funds in our database that owned shares of the same stock at the end of Q2 2022.
10 Cheap ESG Stocks to Buy Now
10. Verizon Communications Inc. (NYSE:VZ)
Forward P/E as of 11/8: 7.45
Number of Hedge Fund Holders: 58
Verizon Communications Inc. (NYSE:VZ) is a company dedicated to ESG initiatives. In its ESG 2021 report, Verizon Communications Inc. (NYSE:VZ) said it is working to achieve net zero emissions in its operations by 2035, including sourcing or generating renewable energy equivalent to half of the company’s annual electricity consumption by 2025. In 2021, Verizon Communications Inc. (NYSE:VZ) also made a multi-year pledge of $3 billion “to uplift vulnerable communities, help close the digital divide, and contribute to the achievement of the UN SDGs. As part of this we are providing 10 million youths with digital skills training, supporting 1 million small businesses with tech resources and tools and upskilling 500 thousand individuals with tech training, all by 2030.”
In terms of its stock, Verizon Communications Inc. (NYSE:VZ) has fallen 28% year to date as of 11/9 given the broader market weakness and the inflation.
Diamond Hill Capital Management commented on Verizon Communications Inc. (NYSE:VZ) in a Q2 2022 investor letter,
“Verizon Communications Inc. (NYSE:VZ), alongside other wireless providers, has been increasing plan prices to help offset inflation effects. We’ve also seen indications that the wireless industry is moving away from the aggressive promotional environment of the last 18 months. A lower level of industry promotional intensity should benefit Verizon’s share of quarterly net adds while allowing the company to continue to focus on migrating customers to higher priced unlimited plans.”
Alongside Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Meta Platforms, Inc. (NASDAQ:META), Verizon Communications Inc. (NYSE:VZ) is a cheap ESG stock that’s owned by many hedge funds in our database at the end of Q2 2022.
9. Cisco Systems, Inc. (NASDAQ:CSCO)
Forward P/E as of 11/8: 11.73
Number of Hedge Fund Holders: 63
Cisco Systems, Inc. (NASDAQ:CSCO) has a goal to reach net zero across scope 1, 2, and 3 emissions by 2040. The company plans to achieve its goal by increasing the energy efficiency of its products and solutions, and to accelerate the use of renewable energy as well as invest in innovative carbon removal solutions. Cisco Systems, Inc. (NASDAQ:CSCO) also contributed $477 million in cash and in kind contributions to community programs in FY21. Cisco Systems, Inc. (NASDAQ:CSCO) shares are down around 30.5% year to date given the weaker market as of 11/9.
8. Broadcom Inc. (NASDAQ:AVGO)
Forward P/E as of 11/8: 11.9
Number of Hedge Fund Holders: 66
Broadcom Inc. (NASDAQ:AVGO)’s ESG initiatives include donating more than $1.2 million for COVID-19 relief in 2021 as well as launching the Diversity@Broadcom initiative to encourage a more diverse, equitable and inclusive community. The company is also trying to reduce data power consumption with its new data center products. According to Broadcom Inc. (NASDAQ:AVGO), data centers could potentially account for 13% of global power consumption by 2030, up from around 1% now. As of 11/9, Broadcom Inc. (NASDAQ:AVGO) shares are down 29.2% year to date given that the NASDAQ has fallen 34.6% year to date.
7. Bristol-Myers Squibb Company (NYSE:BMY)
Forward P/E as of 11/8: 10.06
Number of Hedge Fund Holders: 69
Bristol-Myers Squibb Company (NYSE:BMY) is an ESG leader as the company has committed to reducing its total energy use by 15% and to reduce water usage in all its facilities. Bristol-Myers Squibb Company (NYSE:BMY) also hopes to provide equal opportunities to its employees and is committed to supporting the U.N. principles on human rights. Bristol-Myers Squibb Company (NYSE:BMY) has rallied almost 29% year to date as of 11/9.
RGA Investment Advisors commented on Bristol-Myers Squibb Company (NYSE:BMY) in a Q3 2022 investor letter,
Bristol-Myers Squibb Company (NYSE:BMY), which we referenced above, boasts a double digit free cash flow yield that gets divided roughly equally between repurchases, a dividend and M&A in what is the best environment for acquisitions perhaps ever. In 2019, BMY acquired Celgene, who had one of the better corporate development programs in the industry. We view this as a great outlet for us as generalists considering a company like BMY should truly thrive with the ability to acquire outstanding assets and science at depressed valuations. We touched on the Turning Point acquisition above and we expect the company to be increasingly active in the M&A landscape. Importantly, Celgene also came to BMY with a phenomenal CAR-T platform. CAR-T is a cell therapy that activates the body’s immune system to target cancers. This will be a key growth vector alongside M&A in overcoming the company’s patent cliff.”
6. Pfizer Inc. (NYSE:PFE)
Forward P/E as of 11/8: 9.15
Number of Hedge Fund Holders: 70
Pfizer Inc. (NYSE:PFE) is a leading ESG company given it prioritizes the health and well-being of society and the environment in which the company operates. The company has also focused on climate change impact mitigation as well as the reduction of waste arising from its operations. As of 11/9, Pfizer Inc. (NYSE:PFE) shares are down 17.5% year to date given the broader market weakness.
Like Pfizer Inc. (NYSE:PFE), Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Meta Platforms, Inc. (NASDAQ:META) are cheap ESG stocks that many hedge funds in our database owned at the end of Q2 2022.
5. AbbVie Inc. (NYSE:ABBV)
Forward P/E as of 11/8: 12.72
Number of Hedge Fund Holders: 71
AbbVie Inc. (NYSE:ABBV) has an environmental goal of reducing its carbon emissions by 25% from its 2015 baseline and to reduce its waste created by its businesses. The company has also been very inclusive with 51% of its management positions held by women and AbbVie Inc. (NYSE:ABBV) has donated $1.2 million to disaster relief organizations in 2021 as well. AbbVie Inc. (NYSE:ABBV)’s CEO also added in a 2021 ESG Action Report,
We have a proven track record of developing new innovative medicines that have made a remarkable impact for patients and will continue to change lives for years to come. Since our inception, we have achieved more than 21 major product or indication approvals. Through our pipeline of promising therapies, we anticipate the potential approval of more than a dozen new products or major indications over the next two years. These important milestones have the potential to help millions of additional patients. In addition to our medicines, we continued to deliver on our commitment to society. Together with our nonprofit partners, we advanced health and educational opportunities for underserved communities through our philanthropic commitments and continued to address the impact of COVID-19 through humanitarian support and employee volunteering efforts.
As of 11/9, AbbVie Inc. (NYSE:ABBV) shares have rallied 9% as the market has become more confident on the company’s earnings potential for the future.
4. Merck & Co., Inc. (NYSE:MRK)
Forward P/E as of 11/8: 13.51
Number of Hedge Fund Holders: 79
According to the company in August, Merck & Co., Inc. (NYSE:MRK) is on track to achieve carbon neutrality across its operations by 2025 and to source 100% of its purchased electricity from renewables in the same year. In 2021, Merck & Co., Inc. (NYSE:MRK) also increased representation of women globally to 36% up from 31% in 2020. 2022 has been a good year for Merck & Co., Inc. (NYSE:MRK) as shares of the stock have rallied over 32% year to date as 11/9.
3. Bank of America Corporation (NYSE:BAC)
Forward P/E as of 11/8: 9.99
Number of Hedge Fund Holders: 99
Bank of America Corporation (NYSE:BAC) has long had a commitment to environmental sustainability as the company has goal to achieve net zero greenhouse gas emissions in its financing activities, operations and supply chain before 2050. Bank of America Corporation (NYSE:BAC)’s multi-year financing commitment provides financial capital and intellectual capital to develop solutions to climate change and other environmental challenges. Shares of Bank of America Corporation (NYSE:BAC) trade for around 10 times earnings as of 11/8.
2. JPMorgan Chase & Co. (NYSE:JPM)
Forward P/E as of 11/8: 10.27
Number of Hedge Fund Holders: 104
ESG matters have been important to JPMorgan Chase & Co. (NYSE:JPM) as the leading bank has a sustainable development target to finance and facilitate over $2.5 trillion over 10 years to help address climate change and promote sustainable development. JPMorgan Chase & Co. (NYSE:JPM) is also dedicated to helping address the racial wealth gap and to help develop a more inclusive economy. With a forward P/E of 10.27, JPMorgan Chase & Co. (NYSE:JPM) is pretty cheap in the long term if it can maintain its market share.
1. Meta Platforms, Inc. (NASDAQ:META)
Forward P/E as of 11/8: 11.79
Number of Hedge Fund Holders: 184
Meta Platforms, Inc. (NASDAQ:META) ranks among the leading ESG companies given that its mission is to give people the power to build community and to bring the world closer together. Meta Platforms, Inc. (NASDAQ:META) has also worked to build a diverse and inclusive workplace and is striving for net zero value chain emissions in 2030.
ClearBridge Investments commented on Meta Platforms, Inc. (NASDAQ:META) in a Q3 2022 investor letter,
“Meta Platforms, Inc. (NASDAQ:META), one of two overweights among the mega cap stocks, underperformed in the third quarter (-15.9%) and is the Strategy’s largest detractor year to date. Meta has also trailed mega cap advertising peer Alphabet, which we don’t own, as revenue growth has slowed due to tough comparables to a strong e-commerce environment in early 2021, negative impacts from Apple’s privacy changes and rising expenses.
While we have trimmed our position close to 20%, we remain invested as we do not think the stocks’ valuation at about 13x consensus 2023 earnings appropriately reflects its long-term earnings and free cash flow generation potential. Despite current revenue headwinds, we believe Meta is well-positioned to navigate industrywide changes to advertising targeting and its transition to the Reels short-form video format will monetize in the coming years, helping to re-accelerate revenue growth.
We also welcome Meta’s implementation of cost-cutting measures, which should help uncover the company’s high underlying profitability. Lastly, we see Meta’s investments in augmented reality as a call option for long-duration investors.”
Of the 895 funds in our database at the end of Q2 2022, 184 owned shares of Meta Platforms, Inc. (NASDAQ:META), ranking the company #1 on our list of 10 Cheap ESG Stocks to Buy Now.
You can also take a look at 20 Most Admired Companies in the World in 2022 and 15 Biggest Dow Companies By Market Cap.
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Disclosure: None. 10 Cheap ESG Stocks to Buy Now is originally published on Insider Monkey.
