The stock market is an ever-evolving giant that over the years has taken on many new forms. Investors in the 1980s had no idea what a dot-com boom was going to be. Similarly, those investing in the 1990s and early 2000s had little idea of cloud computing or the Internet of Things. Now already over two decades into the new century, one of the biggest new areas for investors are stocks that are in the environmental, social and governance (ESG) basket. While this does not represent a new technology or health care breakthrough, conscientious investors will look for companies that have the traits that better represent their personal aspirations.
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Environmental, social and governance refer to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk).
A new BofA Securities report focuses on the holdings that the top ESG fund managers have, and we zeroed in on the stocks that were the most widely held. We then screened the top five for Buy ratings across Wall Street, which not surprisingly all five have many of them. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Adobe Systems
This high-profile legacy software company can be found in the portfolio of 31% of ESG funds. Adobe Systems Inc. (NASDAQ: ADBE) operates in three segments: Digital Media, Digital Marketing and Print and Publishing. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content.
Top Wall Street analysts see the company benefiting from artificial intelligence, predictive analytics, automation bots, speech recognition and natural language processing and image recognition. Flagship products include Creative Suite, Photoshop, Acrobat, Premiere, Dreamweaver, Illustrator, InDesign and LiveCycle. PDF and flash technologies from the company have become industry standards and act as a platform for other Adobe products.
The Goldman Sachs price target for the shares is $665, while the consensus target is just $618.99. The final Adobe Systems stock trade on Thursday came in at $605.95 a share.
Ecolab
This company continues to be widely followed on Wall Street, and 33% of the funds own the shares. Ecolab Inc. (NYSE: ECL) provides water, hygiene and infection prevention solutions and services worldwide.Its Global Industrial segment offers water treatment and process applications, as well as cleaning and sanitizing solutions to manufacturing, food and beverage processing, transportation, chemical, metals and mining, power generation, pulp and paper, commercial laundry, petroleum and petrochemical industries.
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The Global Institutional & Specialty segment provides specialized cleaning and sanitizing products to the foodservice, hospitality, lodging, government and education and retail industries. Its Global Healthcare & Life Sciences segment offers specialized cleaning and sanitizing products to the health care, personal care and pharmaceutical industries, such as infection prevention and surgical solutions, and end-to-end cleaning and contamination control solutions under the Ecolab, Microtek and Anios brand names.
The Other segment offers pest elimination services to detect, eliminate and prevent pests, such as rodents and insects in restaurants, food and beverage processors, educational and health care facilities, hotels, quick-service restaurant and grocery operations, and other institutional and commercial customers. This segment also provides colloidal silica for binding and polishing applications in semiconductor, catalyst and aerospace component manufacturing, as well as products and services that manage the wash process through custom-designed programs, premium products, dispensing equipment, water and energy management and reduction, as well as real-time data management.
Investors receive just a 0.91% dividend. Deutsche Bank has a $250 price target, and the consensus target is $231.64. Ecolab stock closed on Thursday at $209.83 a share.
24/7 Wall St.Microsoft
This is a more conservative way for investors to participate in the massive cloud growth, and 41% of the funds own the stock. Microsoft Inc. (NASDAQ: MSFT) manufactures, licenses and supports a wide range of software products. The company has transformed its business model from a component-driven model (personal computer, server) to one driven by the need for cloud capacity.
Many Wall Street analysts agree that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offerings, and which continues growing at triple-digit levels. Some have flagged Azure as the biggest rival to Amazon’s AWS service.
Some analysts maintain that Microsoft is discounting Azure for large enterprises, so that Azure may be cheaper than AWS for larger users. The cloud was big in the 2020 earnings reports and will remain a growing part of the software giant’s earnings profile.
Holders of Microsoft stock receive a 0.80% dividend. The $305 BofA Securities price target compares with a $298.92 consensus price objective and the closing price on Thursday of $277.42.
Nvidia
This sector leader made a huge purchase in 2019 that is proving to be a solid tailwind for the company, and 31% of the ESG funds own the stock. Nvidia Corp. (NASDAQ: NVDA), which is a company that rarely has grown through acquisitions, bought Mellanox and paid a whopping $6.9 billion in cash in a deal that finally closed back in April of 2020.
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In what actually was somewhat of a duel, Nvidia knocked out Intel in its bid to buy the chipmaker, and the deal has helped Nvidia boost its business of making data center chips that help power cloud computing.
Mellanox’s BlueField intelligent network adapters are another version of data center co-processing acceleration. Top Wall Street analysts feel the combination of Nvidia and Mellanox made the company a definite threat to Intel’s data center CPU dominance of workloads.
The company recently outlined a $100 billion total addressable market (TAM) for its data center business by 2024, or twice the $50 billion TAM outlined at its last investor day. The upside includes $20 billion from core Mellanox networking, $10 billion from new class of data processing units and another $10 billion from emerging edge AI EGX computing platform.
Top Wall Street analysts continue to believe the company’s exposure to some of the most exciting areas of growth in tech (gaming/esports, autonomous driving, artificial intelligence and server acceleration) will drive well above industry growth over the next few years.
BMO Capital Markets has set a massive $1,000 price objective on Nvidia stock. The $747.90 consensus target is less than Thursday’s close at $796.11 per share.
Visa
This top credit card issuer is becoming a huge leader in digital pay, and 32% of the funds own the shares. Visa Inc. (NYSE: V) operates the world’s largest retail electronic payments network. The company provides processing services and payment product platforms, including consumer credit, debit, prepaid and commercial payments, that are offered under Visa and related brands.
According to Nielsen estimates, the company is the largest global credit network (as measured by volume) and the second-largest global debit network. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa’s innovations, however, enable financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products.
Shareholders receive a 0.53% dividend. The BofA Securities price target is $264. The posted consensus target is up at $267.77, and Visa stock closed at $236.61 on Thursday.
While not radically different from the holdings of other mutual fund managers and hedge funds, for investors looking for ESG companies, the fact that these are the top holdings of so many of these managers makes them good bets from a socially responsible angle.
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