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5 Best ESG Stocks to Buy Now That are Not a Scam

Find out if Tesla is still one of the best ESG stocks to buy now. Then, keep reading to see my list of best ESG stocks to buy.
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ESG stocks are trending after EV leader Tesla (Nasdaq: TSLA) lost its position in the S&P 500 ESG Index (EFIV). The index is a group of top ESG stocks to buy based on certain criteria.

ESG is an investing strategy that considers more than company profits, such as social and environmental issues. Though many people associate ESG with just the environment, it includes more than that. With this in mind, ESG stands for

  • Environmental
  • Social
  • Governance

After its removal from the ESG index, Tesla CEO Elon Musk took to Twitter to express his frustration, calling ESG a scam. Do you agree with the move? Certainly, Tesla is working towards a more sustainable future, right?

Find out why Tesla was booted from the index and if the company is still one of the best ESG stocks to buy now below.

Is Tesla an ESG Stock?

To answer the question on everyone’s mind, yes, Tesla is still an ESG stock. The company single-handedly changed the auto industry, with automakers pouring funds to develop their own EV models.

That being said, Tesla falls short in other areas that matter to the overall score, according to North American Head of ESG Investing Margaret Dorn. For example, Dorn mentions:

  • Tesla’s lack of low carbon strategy and,
  • Codes of business conduct.

Furthermore, the blog post mentions Tesla’s Media and Stakeholder Analysis slipped with several events reducing its score. In particular, the company’s handling of injuries linked to autopilot mode and claims of poor working conditions, including racial discrimination.

Therefore, Tesla is not included in the S&P’s top ESG stocks to buy now index. But the post ends with praise on Tesla’s part in growing the EV market, saying they will have the opportunity for review again each year.

How Are ESG Ratings Calculated?

As can be seen, the ESG score includes more than just the company’s purpose and vision. In fact, the S&P collects 600 to 1,000 data points on companies which translates to four levels of scores.

Researchers then identify industry-specific factors that can greatly impact the company. For example, Restaurants (customer relationships), Mining (community impact), and pharmaceuticals (addresses cost burden.)

Then, the factors are given a weight for the greatest accuracy. For instance, governance will weigh the most in pharmaceuticals, with product quality carrying the most significant risk.

Lastly, companies are not eligible if they have involvement with thermal coal, tobacco or controversial weapons.

To discover the top ESG stocks to buy now for significant return potential, keep reading.

What Are the Best ESG Stocks to Buy Now?

Using the criteria above, in combination with earnings growth, free cash flow and balance sheet strength, here are the best ESG stocks to buy now. You’ll discover why each company earns a spot on the list and what makes them solid long-term investments.

No. 5 Home Depot (NYSE: HD)

  • MSCI ESG Rating: AA (Leader)

Home Depot is an ESG leader focusing on three main pillars: its people, operating sustainably and strengthening the community.

So far, the company is proving itself through less energy use. Home Depot has cut energy use by 44% since 2010 and is on track to cut its emissions by 50% by 2035. Additionally, Home Depot stepped up during the pandemic, investing around $2 billion to support employees with another $50 million for the community.

On top of this, the company achieved its “highest first-quarter sales in company history” despite the challenging business conditions.

No. 4 NVIDIA (Nasdaq: NVDA)

  • MSCI ESG Rating: AAA (Leader)

After a huge run during the pandemic when computer chips were needed more than ever, the company is on many investors’ watchlist.

Although many know Nvidia as an explosive growth stock, the chipmaker does more for the planet and its people than most. In fact, Nvidia makes the most energy-efficient supercomputer (DGX SuperPOD) while powering 26 of the top 30 world’s greenest supercomputers.

Lastly, 17 Nvidia locations are fully renewable energy powered, with a goal of 65% clean energy use by 2025.

No. 3 Salesforce (NYSE: CRM)

  • MSCI ESG Rating: AAA (Leader)

Already using 100% renewable energy sources across its entire value chain, Salesforce is one of the best ESG stocks to buy now.

With this in mind, Salesforce’s Pledge 1% has over 15,000 companies’ support. The movement commits 1% of Salesforce equity, tech, and employees’ time to enhance education, equality, and the environment.

Most importantly, the company is putting its money where its mouth is. Salesforce has raised over $26 billion in the past ten years to support these causes.

No. 2 Microsoft (Nasdaq: MSFT)

  • MSCI ESG Rating: AAA (Leader)

Another sustainability leader, Microsoft, is taking steps to become carbon negative, water positive and zero waste by 2030. Moreover, the tech giant is also working to protect more land than what they use.

Although the company saw its emissions grow 23% YOY, it was mainly due to business growth. The company notes a 20% increase in business activity, with demand for cloud and Xbox soaring.

However, to help offset this, Microsoft bought the most carbon removal at 1.4 million metric tons while the firm expects to raise the bar again this year with another 1.5 million.

No. 1 Adobe (Nasdaq: ADBE)

  • MSCI ESG Rating: AAA (Leader)

Adobe is another company that doesn’t just talk about what it’s going to do but does it. The company’s mission, to change the world through digital experiences, is becoming more critical than ever, with people spending more time behind the screen.

For one thing, Adobe’s product alone helps reduce physical waste while cutting emissions. So far, the company expects 75% renewable energy use by the end of this year.

The digital firm emphasizes equal pay with global 1:1 pay parity. Lastly, Adobe has invested over $88 million in the community so far to drive a positive impact.

Are These Top ESG Stocks to Buy Now for You?

Investors are having a hard time buying ESG stocks as all major indexes continue slipping. However, now may be a good time to consider the top ESG stocks to buy, with the leaders taking a step back from their highs.

These companies are down over 30% from their 52-week highs (expect Microsoft –27%), giving investors a chance for long-term returns. If you are investing for 3,5,10+ years, these companies are working towards a better, cleaner future for all. Meanwhile, they are at the top of their industries with earnings growth, strong cash flow and fundamentals.

If you wish to support a cleaner future, these are some of the best ESG stocks to buy now with high return potential.

The post 5 Best ESG Stocks to Buy Now That are Not a Scam appeared first on Investment U.

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Zillow Case-Shiller Forecast for May: Slowing House Price Growth

The Case-Shiller house price indexes for April were released this week. The “April” report is a 3-month average including February, March and April closings.  So, this included price increases when mortgage rates were significantly lower than today. Th…

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The Case-Shiller house price indexes for April were released this week. The "April" report is a 3-month average including February, March and April closings.  So, this included price increases when mortgage rates were significantly lower than today. This report includes some homes with contracts signed last December (that closed in February)!

Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow Research: April 2022 Case-Shiller Results & Forecast: Putting on the Brakes
With rates continuing their steep ascent and inventory picking up in months since, April is likely the first month of this deceleration as buyers balked at the cost of purchasing a home and pulled out of the market, leading to slower price growth. While inventory is improving, there is still plenty of room to go before it reaches its pre-pandemic trend. Still, coupled with relatively strong demand, that will continue to be a driver for sustained high prices even as sales volume is dropping in response to affordability constraints. As a result, more buyers will take a step to the sidelines in the coming months, which will help inventory to recover and price growth to slow from its peak, leading the market back to a more balanced stable state in the long run and providing more future opportunities for homeownership for those priced out today.

Annual home price growth as reported by Case-Shiller are expected to slow in all three indices. Monthly appreciation in May is expected to decelerate from April in both city indices, and hold in the national index. S&P Dow Jones Indices is expected to release data for the May S&P CoreLogic Case-Shiller Indices on Tuesday, July 26.
emphasis added
The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be 19.5% in May. This is slightly slower than in February, March and April, but still very strong YoY growth.

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Spread & Containment

Airline stocks have been beset by external problems but could now be a good time to invest in a sector many think is in crisis?

It’s fair to say it has been a tough couple of years for the commercial aviation sector and investors in airline stocks. In 2019 the sector enjoyed record…

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It’s fair to say it has been a tough couple of years for the commercial aviation sector and investors in airline stocks. In 2019 the sector enjoyed record passenger numbers and 2020 was expected to be better yet. Low cost airlines were expanding aggressively, as they had been for years, and national carriers, in response, had made strides in cutting costs and introducing other efficiencies.

Then the Covid-19 pandemic struck, devastating the sector. Over the early part of the pandemic when international travel was severely restricted, airlines operated skeleton schedules. Severely reduced capacity, and schedules regularly interrupted by new lockdowns and shifting government policies bedevilled the sector for the next two years.

Even over the past few months which have seen most pandemic-related travel restrictions drop, a spate of new problems has hampered the sector’s recovery. Staff shortages, the result of a combination of the continuing need for those that become infected with Covid-19 to isolate and a tight labour market, have been a major headache. London-listed easyJet recently cut its capacity forecasts as a result of staffing issues.

And last week over 700 Heathrow airport staff voted to strike over the peak summer period, which promises chaos, and hundreds of cancelled flights, if an agreement can’t be reached over pay in the meanwhile. Staff at three Spanish airports are also calling for industrial action this summer and strikes are a threat elsewhere around Europe’s favourite holiday destinations.

Sky high fuel costs will also put pressure on margins this summer and potentially well into next year and a growing cost of living crisis sparked by inflation levels at 40-year highs will not help demand.

Airline share prices have predictably slumped since the onset of the pandemic. EasyJet’s valuation is down over 50% in the past year and over 75% since summer 2018. Its shares haven’t been worth as little as they currently are since early January 2012.

easyjet plc

Hope on the horizon?

But despite the fact the immediate future still looks tough for airlines, there are a number of reasons why investors might consider dipping into their stocks now or in the months ahead.

The first is that the bulk of the problems that have crushed airline valuations over the past couple of years have been external factors outwith control and unrelated to the underlying quality of companies. They are also all problems that are expected to be temporary and will ease in future. Covid-19 restrictions are, with the notable exception of China, no longer a big issue and hopefully won’t return. And even China recently reduced its mandatory quarantine period for anyone arriving in the country from two weeks to seven days.

That’s still problematic but a sign that an end to the dark cloud of the pandemic may finally be in sight. Most airlines were forced to either take on significant new debt or raise cash through equity issues that diluted existing shareholders, or through mechanisms such as selling and leasing back aircraft.

It will take time for that gearing to be unwound and balance sheets brought back to health. But the sector will eventually recover from the pandemic which should see higher valuations return, providing a buying opportunity at current depressed levels.

Airlines that have come out of the pandemic in the strongest positions will also likely gain market share from weaker rivals, improving their future prospects. British Airways owner IAG, for example, currently has access to more than £10 billion in cash after raising capital to cover losses over the pandemic. EasyJet has access to £4.4 billion. That means both should be well placed to cover any continuing short term losses until passenger numbers return to 2019 levels and push their advantage over less well-capitalised rivals.

Both IAG and easyJet have also seen their passenger capacity improve significantly in recent months. Over the all-important summer quarter to September, the latter expects its passenger capacity to reach 90% of 2019 levels despite the ongoing operational challenges. IAG expects to return to 90% of 2019 capacity over the last quarter of the year.

A full recovery to 2019 levels is possible by next year even if higher costs are likely to mean ticket price increases are inevitable. That does pose a risk for near-term leisure travel demand but there is confidence that remaining pent-up demand from the pandemic period will help soften the impact on discretionary spending on international travel that might have otherwise been more pronounced. Western consumers have also, the pandemic period apart, become so accustomed to taking foreign holidays that some analysts now question if they should still be considered discretionary spending rather than a staple.

Despite the transient and external nature of the problems that have hit easyJet’s valuation, not all analysts are convinced the current share price offers good value even despite its depressed level. They still look relatively expensive given the risks still facing the sector at a forward price-to-earnings ratio of close to x160.

iag

IAG could offer better value, currently trading at a price-to-earnings ratio of just x5.8 for next year. It is also expected to reverse return to a healthy profit by 2023. The company also has exposure to the budget airline market through Vueling and Aer Lingus and while it abandoned its move to take over Air Europa late last year it shows it has ambitions to further expand in this area. And it has plenty of capital available to it to make major acquisitions that could fuel growth when the sector recovers.

IAG’s cheap valuation does reflect the risks it faces over the next couple of years but for investors willing to take on a little more risk the potential upside looks attractive.

A dollar-denominated airline stock play

On the other side of the Atlantic, American airlines also suffered during the pandemic but are now recovering strongly. For British investors, dollar-denominated U.S. stocks also offer the attraction of potential gains in pound sterling terms as a result of a strengthening U.S. dollar. The Fed’s more aggressive raising of interest rates compared to the ECB or Bank of England is boosting the dollar against the pound and euro and it is also benefitting from its safe haven status during a period of economic stress.

One U.S. airline that looks particularly interesting right new is Southwest Airlines, the world’s largest low cost carrier. The USA’s domestic travel market has recovered so strongly this year that Southwest expects its Q2 revenues to be 10% higher than those over the same three months in 2019. It’s already profitable again and earnings per share are forecast to come in at $2.67 for 2022 and then leap to $3.84 in 2023. It’s a much more profitable operator than easyHet.

It also, unusually for an American airline, hedges a lot of its oil. That’s expected to see it achieve much better operating margins this year, predicted to reach 15.5% in Q2,  than other airlines being hit by much higher fuel costs. The company isn’t immune to the risk of the impact the inflationary squeeze could have on leisure travel but is seen as one of the most resilient airlines in the sector. It could be a better bet than either of its two London-listed peers.

The post Airline stocks have been beset by external problems but could now be a good time to invest in a sector many think is in crisis? first appeared on Trading and Investment News.

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Falling VIX Spells BIG Trouble For The Bears

If there’s one thing that a bear market – secular or cyclical – feeds on, it’s fear. The further the drop, the bigger the spike we see in the Volatility…

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If there's one thing that a bear market - secular or cyclical - feeds on, it's fear. The further the drop, the bigger the spike we see in the Volatility Index ($VIX). From the CBOE.com website, the VIX "measures the level of expected volatility of the S&P 500 Index over the next 30 days that is implied in the bid/ask quotations of S&P options. Thus, the VIX is a forward-looking measure..." So let's be clear about this. The VIX does NOT measure what's happening now or what just happened last week. Instead, it looks forward to determine expected volatility. High volatility is generally associated with falling equity prices and low volatility typically accompanies rising equity prices.

As fear dissipates, expected volatility drops, and bear markets end. That's the historical formula. Let's start off by looking back to the financial crisis in 2008 and how the spiking VIX unfolded:

The VIX topped in October 2008 and though the S&P 500 hit two lower price points, the bear market ran out of sellers as fear came tumbling down in late 2008 and into the first quarter of 2009.

During the market turbulence in 2014-2016, we saw a somewhat similar pattern:

Q4 2018 was a very short cyclical bear market (less than 3 months), as was the pandemic-led selling in March 2020 (4 weeks), so there really wasn't much time to evaluate the VIX at various low points, but currently we're seeing a similar pattern in the cyclical bear market of 2022:

But the action on the VIX was really strange this week. The S&P 500 saw selling pressure once again, yet the VIX finished very close to a 3-week low. Check out this 1-month 30-minute chart:

From mid-day on Thursday through the early morning Friday, the S&P 500 fell from 3820 to 3750 and the VIX was dropping right along with it. That's extremely unusual behavior. The VIX is looking ahead and it's pricing in less volatility. That suggests that we're being given a signal of a rally ahead. That's the reason the VIX goes down. Less volatility means higher equity prices.

We're heading into a fresh quarterly earnings season and I'll be featuring one company that I believe is poised to make a big run into its quarterly earnings report later this month. To read about it in our next newsletter article, simply CLICK HERE and sign up for our FREE EB Digest newsletter. It only takes a name and email address. There is no credit card required and you may unsubscribe at any time.

Happy trading!

Tom



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