3 Best ESG Stocks to Buy Now

Capison Pang

The three best environmental, social and governance (ESG) stocks are an asset management giant, a transportation leader and a hydrogen startup.

ESG investing involves selecting investments based on a company’s financials and its ethical and benevolent track record in the environment, society and toward shareholders and employees. ESG investing not only allows individuals to support values they believe in but can also be highly profitable.

Popular examples such as Tesla (NASDAQ: TSLA), Beyond Meat (NASDAQ: BYND) and Microsoft (NASDAQ: MSFT) reside in high-growth and cutting-edge sectors. They also have disrupted industries.

However, ESG criteria are often varied and broad, with ratings derived from corporation self-reporting. A company highly rated in one ESG criteria can also perform poorly in another.

Finally, a pro-ESG company may not be a feasible investment financially. To reduce the noise and clutter, we have worked to identify the top three ESG stocks to aid in your investment decisions.

3 Best ESG Stocks to Buy Now: #3

BlackRock (NYSE: BLK)

BlackRock (NYSE: BLK), headquartered in New York, New York, is the largest asset manager in the world, with $9.6 trillion in assets under management (AUM). Founded in 1988 as a subsidiary of Blackstone (NYSE: BX) before being spun off in 1999, BlackRock has seen its market capitalization (market cap) soar to $88.3 billion in a few short decades.

BlackRock was formed on the premise of passive investing and risk management. With a view that even an expert analyst is unable to outperform the market consistently,  BlackRock specializes in selling and managing passive exchange-traded funds (ETFs), mutual funds and financial instruments. Although the company offers active funds, it is known for its passive investment vehicles.

Low fees and economies of scale rule the world of passive investing. Since passive funds track an index or benchmark instead of relying on market analysis, investors typically seek funds with the lowest fees. The larger an asset manager, the more efficient its trading algorithms and mechanisms. The more efficient a fund’s trading algorithms and mechanisms are, the lower its fees, and BlackRock is the largest of them all.

BlackRock is the world’s largest asset manager. The company is the largest of the “big three” asset managers: BlackRock, Vanguard and State Street (NYSE: STT) and the most influential. The three firms are the majority shareholders of 88% of S&P 500 companies through their investment funds. The Federal Reserve tapped BlackRock in 2008 to manage the $130 billion settlement of Bear Stearns and AIG (NYSE: AIG). The asset manager has since added the Vatican, the European Central Bank and the Ukrainian government to its long list of clients.

Chart provided by Stock Rover.

BlackRock’s economy of scale and influence has allowed it to crush the average industry and S&P 500 returns of 120.0% and 228.8%, respectively, over the last 10 years. BLK has increased by 339.2% over the same period.

BlackRock co-founder and Chief Executive Officer (CEO) Larry Fink is a major supporter of ESG. In two letters addressed to CEOs and clients in 2020, Fink wrote, “climate risk is investment risk” and “we believe that sustainability should be our new standard for investing.” Fink has promoted the same views in his firm’s policies and funds. The firm manages seven of the 10 largest ESG funds and 60% of all assets in ESG ETFs.

BlackRock also actively encourages ESG in its portfolio companies. The asset manager published additional ESG goals at the end of 2021. BlackRock announced it wanted companies to aim for 30% diversity on their board of directors, with at least one member being from underrepresented groups. The investment firm also asked corporations to publish plans on how it was supporting global net zero carbon emissions by 2050.

Like the rest of the financial industry, BlackRock has seen its share price fall by 30.9% over the last 12 months. BLK’s change in share price is displayed below alongside a 50-day moving average.

However, the asset manager’s share price has fallen below its intrinsic value. BLK’s 17.5 price-to-earnings (P/E) ratio is lower than the industry and S&P 500 averages of 21.3 and 20.4, respectively, despite significantly outperforming both over the last 10 years.

BlackRock’s stock market performance and outspoken commitment to environmental, social and governance policies make it a must-buy for any ESG investor.

A discounted cash flow (DCF) analysis using Stock Rover values the stock at $683.27, 6.9% higher than its latest closing price of $639.14, earning BLK a “BUY” recommendation from Stock Rover and a place among our three best ESG stocks to buy now.

3 Best ESG Stocks to Buy Now: #2

Lyft (NASDAQ: LYFT)

Lyft (NASDAQ: LYFT) is an American ridesharing service based in San Francisco, California, founded in 2013. The company has a market cap of $4.7 billion and provides private and shared auto, bike and scooter services across the United States and Canada.

Lyft has long billed itself as a pro-ESG company. The company was founded as a friendlier ridesharing service for its riders and drivers. Lyft introduced tippings years before Uber (NYSE: UBER) and formed the Driver Advisory Council in 2016 to help manage relationships with its drivers. As a result, Lyft has achieved a higher customer service rating and largely avoided the scandals that have plagued Uber.

Lyft has been at the forefront of many ESG issues, such as employee health and safety, community impact and greenhouse emissions. Lyft drivers can qualify for subsidized health care after 15 hours a week of driving. LyftUp provides free and discounted ridesharing services to grocery stores, job interviews and polls for low-income individuals lacking access to transportation. The company also aims to reach 100% electric vehicle usage on its platform by the end of 2030.

Financially, Lyft posted a record-breaking Q2 2022, generating $991 million in revenue. The company’s growth is projected to continue with the end of COVID-19. As riders return post-pandemic, sales are expected to increase by 27.3% in 2022 and 21.6% in 2023. Demand has begun to outpace supply even as total active drivers have risen to their highest level in two years. Lyft now sees a path to profitability as soon as 2024, with earnings per share forecasted to jump by 146.3% next year.

The stock market’s recent decline has hit technology companies especially hard. LYFT has seen its price fall by 69.0% over the last year. The ridesharing platform’s stock movement is shown below, along with a 50-day moving average.

Chart provided by Stock Rover.

Lyft’s 2021 high of $67.42 was indeed too optimistic. However, the company’s current share price of $15.08 is significantly discounted from its actual value. Despite Lyft’s record-setting quarter, LYFT has fallen below its March 2020 low of $16.05. The company’s price-to-sales (P/S) ratio is 1.3, stunningly low, well below the industry and S&P 500 averages of 4.7 and 2.3, respectively. NASDAQ’s recent struggles have created a hidden gem for investors in the ridesharing industry.

A discounted cash flow (DCF) analysis using Stock Rover values the stock at $32.93, 118.4% higher than its latest closing price of $15.08, earning LYFT a “BUY” recommendation from Stock Rover and a place among our three best ESG stocks to buy now.

3 Best ESG Stocks to Buy Now: #1

Plug Power Inc (NASDAQ: PLUG)

Plug Power Inc (NASDAQ: PLUG), founded in 1997, is an American developer and manufacturer of hydrogen and fuel cell technology. The company possesses a market capitalization (market cap) of $9.1 billion and is headquartered in Latham, New York.

The rise of Tesla has brought the feasibility and attractiveness of electric vehicles (EV) squarely into the public spotlight. The global electric market is expected to rise to $725.2 billion by 2027 from $171.3 billion in 2019. The incredible potential of the electric vehicle market has brought even non-traditional auto manufacturers like Apple (NASDAQ: AAPL) and Sony (NYSE: SONY) into the fray.

Apart from reducing the driver’s carbon footprint, the ability of EVs to diverge from traditional piston-powered internal combustion engines has provided a host of benefits. Electric motors are capable of faster acceleration, making EVs feel lighter to drive. EVs are also quieter, making them the preferred choice for individuals seeking comfort.

Electric batteries even allowed Tesla’s Model X to become the first-ever vehicle to garner a perfect safety rating from the National Highway Traffic Safety Administration (NHTSA). The battery, stored in the underbelly of the vehicle, permitted the Model X to possess a lower center of gravity, lessening tip overs.

However, electric motors and rechargeable batteries also present the greatest weaknesses of EVs. Although newer EVs have begun closing the gap, traditional gas-powered automobiles still outrange most battery-powered electric vehicles. Additionally, battery-powered electric vehicles often take hours to achieve a full charge. However, there is a powerful solution: hydrogen.

Refueled by nozzles, hydrogen fuel cells possess the same range and charging speeds as gas-powered cars, while retaining the acceleration, comfort and safety of traditional EVs. The abundance of hydrogen also makes supplying fuel to remote locations easier and much less expensive. Finally, hydrogen fuel cells do not suffer deteriorated performance in cold weather like traditional EVs.

Plug Power is a global leader in hydrogen fuel cell development, an industry projected to reach $49.5 billion by 2027 from just $10.5 billion in 2019. However, the startup does not produce hydrogen products for consumer vehicles. Instead, the company primarily focuses on commercial applications of hydrogen fuel cells, a much less saturated market.

Plug Power’s first product was hydrogen-powered forklifts, which remains a major success with regular purchases from corporations like Whole Foods, Home Depot (NYSE: HD), Kroger (NYSE: KR) and Nike (NYSE: NKE).

In 2017, the company began the sale of its ProGen hydrogen engines for electric delivery vehicles. Rather than requiring the purchase of entirely new automobiles, Plug Power’s ProGen engines allow companies to refit their existing vehicles with a hydrogen engine, dramatically reducing the cost and time to go electric.

Plug Power also produces and develops hydrogen technology for industrial robotics and stationary power, where many of the same advantages of hydrogen fuel cells still apply. The company recently announced a partnership in October 2021 with renewable energy producer Lhyfe to build green hydrogen generation plants throughout Europe.

Although still unprofitable, Plug Power has seen explosive growth in recent years. The company saw its revenue skyrocket from $103 million in 2015 to $502 million in 2021, a compound annual growth rate (CAGR) of 37.3%.

Like many startups, Plug Power has seen its share price fall by 59.0% over the trailing 12 months as investors divest from riskier securities. PLUG’s movement is shown below alongside a 50-day moving average.

Chart provided by Stock Rover.

Despite its share price decline, Plug Power has upheld its growth story. Sales jumped by a ridiculous 1,807.9% over the last year and is projected to increase by an additional 70.6% and 59.9%, over the next two years, respectively. Plug Power performance has been so positive that executives now expect the company to reach profitability by 2024, beating the previous 2025 projection.

Plug Power is a riskier investment than BlackRock and Lyft. However, the energy and vehicle startup’s homerun potential lands it on our list.

A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $34.24, 118.2% higher than its latest closing price of $15.70, earning PLUG a “BUY” recommendation from Stock Rover and a place among our three best ESG stocks to buy now.

Capison Pang writes for www.stockinvestor.com and www.dividendinvestor.com.

 

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