In this article, we discuss the 10 cheap ESG stocks to invest in.
Institutional investors like hedge funds have started placing Environmental, Social, and Governance (ESG) metrics, usually collected from data on intangible assets within a specific business, at the center of their strategies as it becomes clearer that these “non-financial” factors play an increasingly important part in the overall operations of an enterprise. According to a report by news publication Bloomberg, ESG assets will likely rise above $53 trillion in value by 2025, comprising more than a third of the total $140 trillion in assets under management.
This is a conservative estimate since it assumes that ESG assets will grow at a 15% pace through this period, almost half the rate at which they have grown in the past five years. Although European firms are the industry leaders in this regard, Bloomberg estimates that American companies are incorporating ESG practices into the operations faster than their counterparts across the Atlantic and could soon overtake them. By the end of 2021, ESG assets are expected to be more than $37 trillion.
Investors who want to take advantage of this growth should explore ESG and impact investing closely. Some of the top ESG to buy right now include Flex Ltd. (NASDAQ:FLEX), eBay Inc. (NASDAQ:EBAY), and Hologic, Inc. (NASDAQ:HOLX), among others discussed in detail below. The ESG debt market and ESG ETFs are also set to soar in value over the next few years. Almost $1 trillion is expected to flow into ESG ETFs by 2025. The ESG debt market will likely rise to $11 trillion within the next three years, up from $2 trillion presently.
Copyright: lassedesignen / 123RF Stock Photo
Our Methodology
With this context in mind, here is our list of the 10 cheap ESG stocks to invest in. The ESG companies were identified based on the initiatives they have taken to become more responsible environmentally, socially, and in terms of their governance. Those that have a PE Ratio of less than 20 feature heavily on the list.
The hedge sentiment around each stock was gauged using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Cheap ESG Stocks To Invest In
10. Ternium S.A. (NYSE:TX)
Number of Hedge Fund Holders: 15
PE Ratio: 3.84
In August, Ternium S.A. (NYSE:TX) announced that it had entered into an agreement with Vale, a Brazilian mining company, to jointly focus on the development of technologies that will reduce carbon emissions during the manufacture of steel products. The company, based in Luxembourg, could also be affected by a new EU roadmap that plans on cutting carbon emissions on the continent by 55% within this decade.
Citi analyst Alexander Hacking recently reiterated a Buy rating on Ternium S.A. (NYSE:TX) stock and raised the price target to $60 from $50, noting the firm was a “preferred steel stock” based on growth and value metrics.
At the end of the second quarter of 2021, 15 hedge funds in the database of Insider Monkey held stakes worth $213 million in Ternium S.A. (NYSE:TX), up from 14 in the preceding quarter worth $203 million.
Just like Flex Ltd. (NASDAQ:FLEX), eBay Inc. (NASDAQ:EBAY), and Hologic, Inc. (NASDAQ:HOLX), Ternium S.A. (NYSE:TX) is one of the stocks that is attracting the attention of elite investors.
9. Kimco Realty Corporation (NYSE:KIM)
Number of Hedge Fund Holders: 20
PE Ratio: 24.89
In August, Truist analyst Ki Bin Kim had maintained a Buy rating on Kimco Realty Corporation (NYSE:KIM) stock and raised the price target to $25 from $23. Other advisors, like Barclays, are also positive on the shares. This is partly because inflationary tailwinds are expected to boost the earnings of real estate investment trusts in the coming weeks and months. The firm also recently announced a $500 million equity offering. The firm releases an annual corporate responsibility report that highlights the steps it has taken to meet five and ten-year ESG goals.
Kimco Realty Corporation (NYSE:KIM) has a stellar dividend record, like most real estate companies. On August 13, it declared a quarterly dividend of $0.17 per share, in line with previous. The forward yield was 3.1%.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Kimco Realty Corporation (NYSE:KIM) with 2.6 million shares worth more than $54 million.
8. ArcelorMittal (NYSE:MT)
Number of Hedge Fund Holders: 22
PE Ratio: 5.62
ArcelorMittal (NYSE:MT) was recently forced to halt production at some steel plants in Europe because of the high energy prices. Even as a dramatic increase in iron ore prices benefits steel companies, rising energy prices have spoiled the party somewhat. As a result of this, ArcelorMittal has also raised the prices of some steel products. The company is one of the largest steel firms in the world with a market cap of over $31 billion. It has set a goal of reducing carbon emissions internally by 25% in line with international standards in this regard.
ArcelorMittal (NYSE:MT) has also stepped up efforts to reduce the carbon footprint of the company. In June, the company revealed that it had entered into an agreement with Canadian authorities to spend $1.4 billion on decarbonization tech at the Ontario plant of the firm.
At the end of the second quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $1 billion in ArcelorMittal (NYSE:MT), up from 21 in the preceding quarter worth $709 million.
7. Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Holders: 26
PE Ratio: 7.91
Asbury Automotive Group, Inc. (NYSE:ABG) operates as an automotive retailer. It recently announced that it had acquired Larry H Miller Dealerships and Total Care Auto in a deal worth $3.2 billion. The purchase will add $5.7 billion in annual revenue for the buyer. The company recently beat market estimates on earnings per share and revenue in the third quarter by $1 and $300 million respectively. One of the biggest stakeholders in the firm is Impactive Capital, an ESG-focused hedge fund founded in 2018 that has quickly built a reputation for using capital as a tool for change. The fund is steadily improving the ESG score of Asbury Automotive Group.
On September 30, investment advisory Craig-Hallum maintained a Buy rating on Asbury Automotive Group, Inc. (NYSE:ABG) stock and raised the price target to $250 from $230. Ryan Sigdahl, an analyst at the firm, issued the ratings update.
At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $821 million in Asbury Automotive Group, Inc. (NYSE:ABG), up from 20 in the previous quarter worth $903 million.
6. Owens Corning (NYSE:OC)
Number of Hedge Fund Holders: 34
PE Ratio: 9.90
Owens Corning (NYSE:OC) makes and sells a range of building products in the composites, insulation, and roofing domains. The firm is based in Ohio and was founded in 1938. It has an impressive dividend history and recently declared a quarterly dividend of $0.26 per share, in line with previous. The forward yield was 1.1%. The firm also recently beat market expectations on earnings per share and revenue in the third quarter by $0.07 and $40 million respectively. The company has topped the 100 Best Corporate Citizens List three years in a row, setting unprecedented governance and sustainability standards in the process.
Analysts are naturally bullish on Owens Corning (NYSE:OC) in the wake of these results. RBC Capital analyst Mike Dahl recently raised the price target on the stock to $97 from $94 but kept a Sector Perform rating, underlining that inflation may weigh on the margins for the firm in the near term.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Owens Corning (NYSE:OC) with 1 million shares worth more than $104 million.
Along with Flex Ltd. (NASDAQ:FLEX), eBay Inc. (NASDAQ:EBAY), and Hologic, Inc. (NASDAQ:HOLX), Owens Corning (NYSE:OC) is one of the stocks that hedge funds are buying.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Owens Corning (NYSE:OC) was one of them. Here is what the fund said:
“Roofer and insulator Owens Corning, also a ClearBridge holding, is helping make the building sector more sustainable. The company operates across 33 countries and has positive environmental impact primarily through its insulation business. In the EU, for example, buildings are responsible for 40% of energy consumption and 36% of GHG emissions. New buildings consume only half of the energy of those built over 20 years ago, according to the company. But as 85% of the buildings in the EU are older than 20 years, and 85%–95% of them are expected to still be standing in 2050, there is need for a massive renovation. Roughly 35 million buildings in the EU will need to be renovated by 2030, according to the company.
Properly insulated homes lower energy intensity and thus the overall carbon footprint of a home. According to Owens Corning, insulation intensity of new homes is on the rise, driven in part by state and municipal rules requiring certain levels of insulation, but also by consumer preference for reducing energy consumption and being greener in the home. The company is helping meet this demand with insulation products that are lighter weight yet deliver stronger performance than higher-weight/higher-density products. The insight that greater density does not necessarily mean better performance has allowed the company to reduce shipping weight and fuel.
Owens Corning’s roofing business also features shingles that use a highly reflective granule technology to reflect the sun, keep roofs cooler and lower air conditioning energy demand. Its composites business also counts wind turbines as a major end use, another positive for sustainability goals.
As part of its 2030 Sustainability Goals, Owens Corning is also looking to grow a circular economy model in which virgin raw materials, waste, energy and emissions are minimized through intelligent design, renewable and recycled input and energy-efficient production.”
5. Steel Dynamics, Inc. (NASDAQ:STLD)
Number of Hedge Fund Holders: 26
PE Ratio: 6.00
The increase in demand for steel in the post-pandemic economy, as well as an increase in pricing because of supply chain pressures, has benefited Steel Dynamics, Inc. (NASDAQ:STLD) in the past few weeks. The company recently posted market-beating earnings for the third quarter but concerns about pricing have led to some analyst downgrades. Morgan Stanley recently highlighted that steel prices may have peaked. The company was recently named on a list of 100 Best ESG Companies of 2021 by Investor’s Business Daily. It was the only steel producer on the list.
In order to prepare for supply chain issues in the future, Steel Dynamics, Inc. (NASDAQ:STLD) announced last month that it had acquired a 45% stake in New Process Steel, a steel supply chain company.
At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $538 million in Steel Dynamics, Inc. (NASDAQ:STLD), the same as in the preceding quarter worth $570 million.
4. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 39
PE Ratio: 4.20
eBay Inc. (NASDAQ:EBAY) has remarkably stayed relevant in the ecommerce world despite tough competition from the likes of Amazon, Walmart, and several other internet-based ecommerce businesses. Despite beating market estimates on earnings per share and revenue in the third quarter results, the share price has pulled back in the past few days due to disappointing guidance numbers from the firm. The very business model of the firm is based on ESG beliefs as it prefers to sell second-hand and used items. A significant chunk of the revenue of the firm is thus considered environment-friendly.
KeyBanc analyst Edward Yruma recently maintained an Overweight rating on eBay Inc. (NASDAQ:EBAY) stock and raised the price target to $90 from $80, noting that the third quarter results pointed to the building momentum of the company in key categories.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Baupost Group is a leading shareholder in eBay Inc. (NASDAQ:EBAY) with 14 million shares worth more than $1 billion.
In its Q4 2020 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and eBay Inc. (NASDAQ:EBAY) was one of them. Here is what the fund said:
“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
3. Hologic, Inc. (NASDAQ:HOLX)
Number of Hedge Fund Holders: 41
PE Ratio: 9.39
Evercore ISI analyst Vijay Kumar upgraded Hologic, Inc. (NASDAQ:HOLX) stock to Outperform from In Line with a price target of $78 in July, underlining that the company was sticking to a core competency and making smart acquisitions in the base business. One of the smart purchases has been Bolder Surgical, a commercial stage developer of surgical products, for $160 million in October. The move will add to the impressive product line of Hologic. In the ESG bracket, the company sets annual goals to improve women leadership in healthcare, reduce carbon emissions, and improve health access for underserved communities. It releases a sustainability report to underline progress on each.
Hologic, Inc. (NASDAQ:HOLX) also had solid fundamentals. In late July, the firm had reported earnings for the third quarter, posting earnings per share of $1.33, beating predictions by $0.21. The revenue over the period was $1.1 billion, up 42% year-on-year.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Hologic, Inc. (NASDAQ:HOLX) with 2.2 million shares worth more than $149 million.
2. Flex Ltd. (NASDAQ:FLEX)
Number of Hedge Fund Holders: 43
PE Ratio: 8.57
Flex Ltd. (NASDAQ:FLEX) announced on October 18 that it had purchased Anord Mardix, a critical power distributor, from investment firm Bertram Capital in a deal worth $540 million. The purchase is part of a plan to expand presence in the data center market. The company offers electronic manufacturing services to original equipment manufacturers. It is headquartered in Singapore and was founded in 1990. In 2020, the firm achieved 92% growth in sustainable energy use year-on-year and even used ESG standards to screen all new global suppliers it conducted business with.
In May, investment advisory Citi reiterated a Buy rating on Flex Ltd. (NASDAQ:FLEX) stock and raised the price target to $25 from $22, noting that the new management had the ability to unlock “value and gems” within the business.
At the end of the second quarter of 2021, 43 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Flex Ltd. (NASDAQ:FLEX), down from 48 the preceding quarter worth $1.6 billion.
In its Q4 2020 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and Flex Ltd. (NASDAQ:FLEX) was one of them. Here is what the fund said:
“Our third quarter addition of contract manufacturer Flex provides a great example. Originally an electronics-focused outsource manufacturer with highly cyclical cash flows and short product lifecycles, the company has evolved its customer base toward the capital goods, automotive and healthcare industries. Having successfully recast itself as a longer-cycle, “new industrial,” Flex’s stock is benefitting from more stable and diversified cash flows and more consistent revenue growth. CEO Revathi Advaithi joined in early 2019 and she has refocused the company by accelerating the transition to these longer-cycle businesses. Moreover, the company has been shareholder oriented, using the company’s ample free cash to reduce shares outstanding by 35% in the last decade. Lastly, Flex’s Nextracker division should provide nice upside. The solar tracking company manufactures motors, software and systems for utility-scale power generation projects and business is growing quickly as the shift toward sustainable energy sources hastens. We believe Nextracker is underappreciated and could represent a significant amount of hidden value. At 13 times earnings Flex is a very attractive risk reward opportunity.”
1. Mohawk Industries, Inc. (NYSE:MHK)
Number of Hedge Fund Holders: 44
PE Ratio: 3.55
Mohawk Industries, Inc. (NYSE:MHK) recently posted earnings for the third quarter, reporting earnings per share of $3.95, beating predictions by $0.15. The revenue over the period was $2.8 billion, up more than 9% year-on-year. The increase in oil and gas prices in recent weeks has resulted in higher transportation costs for the firm. Coupled with demand problems, the share price has pulled back in the past few days.
Mohawk Industries, Inc. (NYSE:MHK) makes and sells flooring products. As part of an ESG initiative, the company also offers sustainable carpeting and flooring options. The company also aims to offset energy used to make products by installing solar units in remote communities.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Pzena Investment Management is a leading shareholder in Mohawk Industries, Inc. (NYSE:MHK) with 1.6 million shares worth more than $308 million.
You can also take a peek at 10 Companies that Benefit From Crypto Mining and 15 Best Strong Buy Stocks to Invest In.
Follow Insider Monkey on Twitter
Suggested Articles:
- 10 Best Finance Stocks that Pay Dividends
- 15 Best Casino Stocks to Invest In
- 10 Best SPACs to Invest In According to Reddit
Disclosure. None. 10 Cheap ESG Stocks To Invest In is originally published on Insider Monkey.
