In this article, we will take a look at the 10 best socially responsible stocks to buy according to analysts.
Socially responsible investing is quickly becoming a norm rather than an exception as more and more people understand the importance of taking into account social conscience when making investment decisions. Socially responsible investing includes investing in companies that adhere to ethical or socially conscious business practices or steer clear of businesses or actions that harm the society according to many, including tobacco, alcohol, gambling, weapons, carbon emissions, child labor, etc. Socially responsible investing, ESG investing and impact investing have all seen a huge rise in popularity over the past few years.
According to estimates from Bloomberg Intelligence, assets in the ESG space were expected to reach $41 trillion by the end of 2022. Historically, Europe has been at the forefront of ESG policy making and ESG investing but the Bloomberg report said that the US is now leading the investments in the ESG space.
The Rise of Socially Responsible ETFs
One of the most important trends seen in the socially responsible investing or ESG investing circles is the rise of ETFs and mutual funds. These give individual investors an easy and cost-effective way to have exposure to socially responsible companies. As an individual investors it’s difficult to find which companies are sticking to socially responsible business practices and ESG goals. So why not leave this legwork to the experts and just put your money into an ETF or mutual fund that is focused on finding such companies? The Bloomberg report cited data from Morningstar, which says that money held in ESG ETFs and sustainable mutual funds worldwide jumped 53% in 2021 to reach $2.7 trillion.
As investors grow socially conscious, hedge funds are also upping their activism in the space and many companies are facing heat from ESG-focused hedge funds that are forcing companies to get their act together and stick to environment-friendly business practices. For example, environment-focused fund Engine No. 1 in 2021 managed to defeat oil giant ExxonMobil and installed its two members on the company’s board. The fund, which was not popular until this victory, received support from some of the biggest institutional investors of ExxonMobil, including BlackRock, Vanguard and State Street. This shows the massive change ESG investing is ushering in at the Wall Street and how many investment firms and companies either willingly or unwillingly have to give in to this pressure.
Engine No.1 in a scathing letter to ExxonMobil’s board of directors criticized the company’s lack of adherence to its goals and targets related to climate. Here’s what the historic letter said:
In an apparent acknowledgment of investor sentiment, ExxonMobil has now gone from dismissing emissions reduction goals as a “beauty competition” to claiming repeatedly this month that its emissions reduction plans are “consistent” with the Paris Agreement.1 We have therefore reviewed the Company’s claims with a number of experts, including Professor David Victor at the University of California San Diego, who was a convening lead author for the Intergovernmental Panel on Climate Change (IPCC), which provides the analysis that underpins the Paris Agreement. After doing so, we believe it is clear that, as detailed below, the Company’s true trajectory is nowhere near Paris consistency, and that a clear understanding of ExxonMobil’s claims underscores the long-term risk facing the Company in a decarbonizing world. None of the Company’s new claims change its long-term trajectory, which would grow total emissions for decades to come. This is not consistent with, but rather runs directly counter to the goals of the Paris Agreement. We also continue to believe that without new members of the Board with the necessary expertise and experience, ExxonMobil will have little choice but to continue seeking to create the appearance of transformative long-term change, rather than working to make it a reality.
Backlash
But not all is good and rosy for the ESG investing world. ESG investors and climate activist funds are facing a backlash from some circles and ESG funds also saw a huge exodus of investors amid losses and tough macro backdrop.
For example, the iShares ESG Aware MSCI USA ETF assets have dropped to $13.8 billion from $25 billion recorded a year ago, according to a Bloomberg report. The report said that as of March 2023, global assets of ESG ETFs were about $471 billion, as compared to $486 billion recorded in January. The report said that investors pulled a whopping $4.4 billion in a single week in March.
The report also said the industry was facing a “concentration” problem, in which a handful of major funds were invested in the ESG space and when a single major fund decides to pull money from a fund, the overall industry sees a decline.
Some investors are also getting frustrated with what they believe an overemphasis on environment in the ESG spectrum. Billionaire hedge fund manager Paul Tudor Jones, who is the cofounder of Just Capital, believes worker treatment should be the center of the ESG equation and not the environment.
According to CNBC, Jones said:
“So much of ESG is politicized because the environmental part of the bucket seems to drive, or they would like to believe that the environmental part of it drives it, when in actuality the most important thing by a wide margin is how we pay and treat our workforce.”
Photo by GreenForce Staffing on Unsplash
Our Methodology
For this article we first scanned the Vanguard FTSE Social Index Fund Investor Shares which seeks to track the performance of the FTSE4Good US Select Index. The fund’s holdings includes companies that are not involved in business practices like adult entertainment, alcohol, tobacco, cannabis, gambling, chemical and biological weapons, cluster munitions, anti-personnel landmines, nuclear weapons, conventional military weapons, civilian firearms, nuclear power, and coal, oil, or gas. The fund also uses ESG criteria to screen stocks. We picked 10 stocks which have a strong upside potential based on their average analyst price targets. Some notable names in the list include Like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG).
Best Socially Responsible Stocks to Buy According to Analysts
10. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 62
Analyst Price Target: $340
Home improvement giant The Home Depot, Inc. (NYSE:HD) has solid ESG ratings. The Home Depot, Inc. (NYSE:HD) also mentions its ESG goals and ESG-related plans on its website. It is an important constituent of the Vanguard FTSE Social Index Fund.
According to CNN Business, The Home Depot, Inc. (NYSE:HD)’s price target set by analysts is $340. The Home Depot, Inc. (NYSE:HD) was trading at around $300 as of the market close of April 28. This shows that The Home Depot, Inc. (NYSE:HD) has a solid upside potential.
As of the end of the fourth quarter of 2022, 62 hedge funds tracked by Insider Monkey had stakes in The Home Depot, Inc. (NYSE:HD). The biggest hedge fund stakeholder of The Home Depot, Inc. (NYSE:HD) was Ric Dillon’s Diamond Hill Capital which owns a $340 million stake in the company.
Madison Sustainable Equity Fund made the following comment about The Home Depot, Inc. (NYSE:HD) in its Q1 2023 investor letter:
“The Home Depot, Inc. (NYSE:HD) provided an update on reducing the environmental impact of its stores. Since 2010, the company has reduced U.S. store electricity use by 50% by implementing LED lighting across all of its stores, buying electricity from large-scale commercial solar farms, and installing rooftop solar farms. The company is now applying its experience to other parts of its operations, including reducing electricity use in its supply chain and water use in store irrigation. Home Depot was also recognized by the U.S. Environmental Protection Agency for being one of the nation’s largest green power users.”
9. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 66
Analyst Price Target: $545
Last year, Costco Wholesale Corporation (NASDAQ:COST) voted in favor of a proposal put forward by Green Century Capital Management which suggested that the company should set targets for reaching net-zero greenhouse gas (GHG) emissions.
Costco Wholesale Corporation (NASDAQ:COST) also made it to our list of the best ethical stocks to invest in according to Redditors since the company is quite famous among Redditors for its employee-friendly policies.
A total of 66 hedge funds in Insider Monkey’s database of 943 hedge funds were long Costco Wholesale Corporation (NASDAQ:COST) as of the end of the fourth quarter of 2022. The biggest hedge fund stakeholder of Costco Wholesale Corporation (NASDAQ:COST) was Ray Dalio’s Bridgewater Associates which owns a $428 million stake in the company.
8. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 71
Analyst Price Target: $138
NIKE, Inc. (NYSE:NKE)’s slogan in the ESG space is “Move to Zero,” which shows its commitment to becoming carbon neutral. NIKE, Inc. (NYSE:NKE) plans to reduce its carbon emissions by 0.5 million tons by 2025.
NIKE, Inc. (NYSE:NKE)’s goal also includes reducing fresh water usage per kilogram in textile dyeing and finishing by 25%.
NIKE, Inc. (NYSE:NKE)’s median price target for the next 12 months according to CNN Business is $138, which shows a strong upside potential from the current levels.
As of the end of the fourth quarter of 2022, 71 hedge funds were long NIKE, Inc. (NYSE:NKE), according to Insider Monkey’s database of 943 hedge funds. The biggest hedge fund stakeholder of NIKE, Inc. (NYSE:NKE) was Fundsmith LLP of Terry Smith which owns a $787 million stake.
Like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), NIKE, Inc. (NYSE:NKE) is one of the most popular stocks among hedge funds and Wall Street analysts.
7. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 75
Analyst Price Target: $46.50
The Vanguard FTSE Social Index Fund is exposed to about 2.7 million Pfizer Inc. (NYSE:PFE) shares as of the end of March 2023. Pfizer Inc. (NYSE:PFE) mentions it achievements and goals across the ESG spectrum on its website. Pfizer Inc. (NYSE:PFE) plans to achieve the Net-Zero Standard by 2040.
As of the end of the last quarter of 2022, 75 hedge funds had stakes in Pfizer Inc. (NYSE:PFE). The biggest stakeholder of Pfizer Inc. (NYSE:PFE) was Cliff Asness’s AQR Capital Management which owns a $503 million stake in the company.
6. Tesla Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 91
Analyst Price Target: $186.20
Tesla Inc. (NASDAQ:TSLA) is an important part of the Vanguard FTSE Social Index Fund since the company is the leader in the EV industry which is helping the world move towards a greener future. Tesla Inc. (NASDAQ:TSLA) spearheaded the EV boom that is currently taking over the world and many countries plan to replace conventional engine cars with EVs in the coming decades.
Despite short-term headwinds, analysts believe Tesla Inc. (NASDAQ:TSLA) has a lot of room to run. Tesla Inc. (NASDAQ:TSLA)’s price target stands at $186. Hedge funds are also piling into the stock. Insider Monkey’s database of 943 hedge funds show that 91 hedge funds were long Tesla Inc. (NASDAQ:TSLA) as of the end of the fourth quarter of 2022.
Like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), Tesla is one of the most popular stocks among hedge funds and Wall Street analysts.
Aristotle Atlantic Focus Growth Strategy made the following comment about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2023 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) was a negative contributor to performance due to our underweight position relative to Russell 1000 Growth Index, as the company had strong performance in Q1. The strength occurred after the company partially reversed a previously announced price cut for its electric vehicles following a period of strong demand. Tesla also reported better-than-expected results for Q4 2022 during the first quarter.
Tesla Motors designs, develops, manufactures, and markets high-performance, technologically advanced electric cars and solar energy generation and energy storage products. Tesla sells more than five fully electric cars, among others, the Model X and Y SUVs, as well as the Model S sedan and Model 3 sedan. The company has a growing global network of Tesla Superchargers, which are industrial grade, high-speed vehicle chargers, typically placed along well-traveled routes and in and around dense city centers to allow Tesla owners quick and reliable charging. Tesla offers certain advanced driver assist systems under its Autopilot and Full Self-Driving options. US customers generate nearly half of Tesla’s sales.
We see Tesla as the leading manufacturer of battery powered electric vehicles (EVs). The company has achieved scaled production of EVs before the other large automobile manufacturers. The company’s technology in battery production and self-driving technology is more mature than competitors’ offerings. EVs are one of the fastest growing categories within automobile manufacturing. The profit margin in the automotive segment is significantly above automotive competitors which provides the company flexibility to price its vehicles more strategically as the competition eventually scales up their EV production. The direct-to-consumer sales model gives the company more control over its relationship with its customers as well as a source of higher profit margin since there is no dealership share of the profits.”
5. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 106
Analyst Price Target: $355
NVIDIA Corporation (NASDAQ:NVDA) has pledged to use advanced technologies to fight the climate change problem. NVIDIA Corporation (NASDAQ:NVDA) has also cut its emissions by 15% per employee. Nvidia plans to source 65% of its global electricity from renewable sources by 2025. It is a key part of the Vanguard FTSE Social Index Fund.
According to CNN Business, NVIDIA Corporation (NASDAQ:NVDA)’s median price target set by analysts is $355, which presents a strong upside to its current stock price of $277. Hedge fund sentiment for NVIDIA Corporation (NASDAQ:NVDA) saw a huge jump in the fourth quarter, with 106 funds tracked by Insider Monkey reporting stakes in the company at the end of the period, up from 89 funds in the previous quarter.
Aristotle Atlantic Focus Growth Strategy made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2023 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) contributed to outperformance, as the company announced better-than-expected fourth quarter earnings driven by a strong rebound in Gaming and an improving outlook for the Datacenter business due to the acceleration of Graphics Processing Unit (GPU) driven Artifical Intelligence (AI) deployment. The company also hosted its Global Technology Conference (GTC) in March where it further highlighted its leading technology being used to develop AI Large Language Models (LLM). The company announced new partnerships with hyperscalers for its AI cloud-based service while also releasing new software and hardware offerings that will support GPU-driven AI growth. Nvidia continues to see a growing addressable market for its products and services as AI uses become more prevalent.”
4. UnitedHealth Group Inc. (NYSE:UNH)
Number of Hedge Fund Holders: 110
Analyst Price Target: $600
UnitedHealth Group Inc. (NYSE:UNH) ranks 4th in our list of the best socially responsible stocks to buy according to analysts. UnitedHealth Group Inc. (NYSE:UNH)’s ESG risk score is 15.3, according to Sustainalytics, which comes under the low risk category. UnitedHealth Group Inc. (NYSE:UNH)’s median price target is $600, which presents an attractive upside potential from the current levels.
As of the end of the fourth quarter of 2022, 110 hedge funds tracked by Insider Monkey had stakes in UnitedHealth Group Inc. (NYSE:UNH). The biggest hedge fund stakeholder of UnitedHealth Group Inc. (NYSE:UNH) is GQG Partners of Rajiv Jain which owns a $2 billion stake in the company.
Polen Focus Growth Strategy made the following comment about UnitedHealth Group Incorporated (NYSE:UNH) in its Q1 2023 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH) was our largest absolute detractor, declining by over 10% in the quarter. Besides healthcare as a sector coming under pressure in the quarter, we believe there was some additional pressure on the shares from the February advance release of 2024 Medicare rates for Medicare Advantage health plans. In the preview, CMS (Center for Medicare and Medicaid Services) announced Medicare rates would come in well below most people’s assumptions, which could pressure the profits of Medicare managed care providers like UnitedHealth, who also face inflationary medical cost pressures. After quarter end though, CMS adjusted those rates a bit higher. On the announcement, UnitedHealth has recouped most of its modest decline from the original announcement.
While CMS rate rules are important for companies like UnitedHealth, we believe the company is far better positioned than its peers to be able to mitigate any rate pressure or medical cost inflation. We believe this is due to its scale advantages and its other, higher-profit-margin businesses like Optum Insight, its data and analytics business, and its larger Optum Health business, where it operates the medical practices of primary care providers on a national basis.”
3. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 177
Analyst Price Target: $300
A strong ESG score and investments in the ESG space makes Visa Inc. (NYSE:V) a key part of the Vanguard FTSE Social Index Fund.
Recently, Visa Inc. (NYSE:V) posted strong fiscal second quarter results. Adjusted EPS in the period came in at $2.09, beating estimates by $0.10. Revenue in the quarter jumped 11.1% year over year to reach $8 billion, beating estimates by $210 million.
Visa Inc. (NYSE:V)’s median price target is $300, which shows the stock has a lot of room to run in the next 12 months.
A total of 177 hedge funds tracked by Insider Monkey had stakes in Visa Inc. (NYSE:V) as of the end of the fourth quarter of 2022, up from 165 funds in the previous quarter. This shows hedge fund sentiment for Visa Inc. (NYSE:V) gained in the last quarter of 2022.
Polen Global Growth Strategy made the following comment about Visa Inc. (NYSE:V) in its Q1 2023 investor letter:
“We trimmed Mastercard and Visa Inc. (NYSE:V) to equal weights of the Portfolio. Mastercard and Visa operate as a duopoly in a large and growing market. Over the last 50 years, global personal consumer expenditures (PCE) has grown 7-9% annualized. We expect 4-5% long-term PCE growth going forward. Additionally, the shift from cash to credit continues unabated, with a total credit penetration of only approximately 50% globally.3 This shift provides Visa and Mastercard with another ~4-6% of growth. When combined with PCE, this gives both companies high-single-digit to low-double[1]digit revenue growth opportunities. This growth estimate is before accounting for growth amplifiers like the acceleration of e[1]commerce, the shift from offline to online, and additional services. Both companies enjoy extremely strong network effects that provide strong competitive advantages.
We have trimmed Visa and Mastercard because their combined weight grew to over 12% of the Global Growth Portfolio because of their recent performance and to fund our increase in Amazon’s position size. We added to both positions when their prices were depressed due to cross-border transactions deteriorating materially from the pandemic. Cross-border volumes came roaring back when travel corridors reopened, and although we are several quarters removed from the cross-border nadir, Visa still grew volumes >30% in 1Q23. Total cross-border volumes are now 132% of 2019 levels. At 4.5% each, both companies remain high conviction positions for Global Growth.”
2. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 209
Analyst Price Target: $130
Alphabet Inc. (NASDAQ:GOOG) is famous for investing heavily into the ESG space and environment-related projects. Last year Alphabet Inc. (NASDAQ:GOOG) revaled its plans to invest $5.75 billion in ESG-related initiatives.
A total of 209 hedge funds tracked by Insider Monkey were long Alphabet Inc. (NASDAQ:GOOG) as of the end of the fourth quarter of 2022. The biggest hedge fund stakeholder of Alphabet Inc. (NASDAQ:GOOG) is TCI Fund Management of Chris Hohn which owns a $5 billion stake in the company.
Polen Focus Growth Strategy made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2023 investor letter:
“One area we are watching regarding Alphabet Inc. (NASDAQ:GOOG) and Adobe is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Analyst Price Target: $304
Microsoft Corporation (NASDAQ:MSFT) has secured solid ESG ratings from several independent agencies because of its investments in the ESG space and sustainable business practices. Microsoft Corporation (NASDAQ:MSFT)’s average analyst price target is $304, which shows a strong upside potential from the current levels. Microsoft Corporation (NASDAQ:MSFT)’s ESG risk score is 15, which comes under the low risk category.
As of the end the fourth quarter of 2022, Microsoft Corporation (NASDAQ:MSFT) was the most popular stock among the 943 hedge funds tracked by Insider Monkey. The biggest hedge fund stakeholder of Microsoft Corporation (NASDAQ:MSFT) during the period after Bill & Melinda Gates Foundation was TCI Fund Management of Chris Hohn.
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Disclosure: None. 10 Best Socially Responsible Stocks to Buy According to Analysts is originally published on Insider Monkey.
