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ESG Investing Trend to Stay Strong Post Pandemic: 5 Top Picks

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Even before the coronavirus pandemic wrecked havoc on the global economy, investors have been inclined toward environmental, social and governance (ESG) investing. There has been an increasing recognition that companies with strong ESG track records can also produce competitive financial results.

The benefits are mostly driven by several factors such as cost savings, energy efficiency and better management driven by a more diverse leadership.

ESG Stocks Outperform During COVID-19 Downturn

Since the start of the pandemic, investors have been shifting to strong ESG stocks more due to their stakeholder-focused, adaptive-governance structures and the social contract characteristics. The capability of these stocks to remain resilient amid the rapidly changing dynamics has led to their outperformance, attracting investors at the same time.

In the 12 months ending Jun 9, the S&P 500 ESG index produced an annualized return of 15.09%, while the broader index returned 11.62%. In fact, per a Morningstar report, 89% of its ESG stocks outperformed their broader market counterparts in the first quarter of 2020, while the S&P 500 lost 30% of its value due to the coronavirus sell-off.

ESG companies are not dependent on market cycles but do offer solid prospects. In fact, they have a sturdy balance sheet. Generally, a high level of borrowing would raise warning signals over governance and keep these companies in check. Hence, unlike other companies, their cash flow doesn’t dry up even during downturns.

Why will ESG investing continue to soar post the pandemic? ESG stocks have shown their worth in the immediate shock during the coronavirus crisis, in terms of both resilience and diversification benefits. Further, as the economy gains traction, these companies will continue their upward trend especially backed by their focus on long-term goals over near-term profit.

The ESG-based funds have attracted a record amount of capital in the first quarter of 2020 even as the coronavirus pandemic rattled the economy. Per a Morningstar report, global sustainable funds saw inflows of $45.7 billion, while the broader fund had an outflow of $384.7 billion. In fact, capital inflows in the first quarter were more than half of the record $21.4 billion, which the sustainable funds gained in 2019.

5 Stocks to Buy Now

Given the current scenario and the scope that ESG stocks have even post the pandemic, we have shortlisted five stocks that are poised to grow

Eli Lilly and Company (LLY - Free Report) discovers, develops, manufactures, and markets pharmaceutical products. The company’s expected earnings growth rate for the current year is 12.8% compared with the Zacks Large Cap Pharmaceuticals industry’s projected earnings growth of 7.9%.

The Zacks Consensus Estimate for its current-year earnings has climbed 0.6% over the past 60 days. Eli Lilly and Company flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AbbVie Inc. (ABBV - Free Report) discovers, develops, manufactures, and sells pharmaceuticals. The company’s expected earnings growth rate for the current year is 19.8% compared with the Zacks Large Cap Pharmaceuticals industry’s projected earnings growth of 7.9%.

The Zacks Consensus Estimate for its current-year earnings has moved 14.2% up over the past 60 days. AbbVie sports a Zacks Rank #1.

NVIDIA Corporation (NVDA - Free Report) operates as a visual computing company. The company’s expected earnings growth rate for the current year is 36.4% against the Zacks Semiconductor - General industry’s projected earnings decline of 14.3%.  The Zacks Consensus Estimate for its current-year earnings has moved up 4.4% over the past 60 days. NVIDIA holds a Zacks Rank #2 (Buy).

Fortinet, Inc. (FTNT - Free Report) provides security solutions all parts of IT infrastructure. The company has an expected earnings growth rate of 12.6% for the current year against the Zacks Security industry’s estimated decline of 15.3%. The Zacks Consensus Estimate for its current-year earnings has climbed 6.1% over the past 60 days. Fortinet carries a Zacks Rank #2.

Bristol-Myers Squibb Company (BMY - Free Report) discovers, develops, and sells biopharmaceutical products world. The company’s expected earnings growth rate for the current year is 30.9% compared with the Zacks Large Cap Pharmaceuticals industry’s projected earnings growth of 7.9%.The Zacks Consensus Estimate for its current-year earnings has moved 0.5% up over the past 60 days. Bristol-Myers Squibb holds a Zacks Rank #2.

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