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ESG, which stands for environmental, social, and governance, is a term thrown around quite loosely these days. I’ve realized that many believe ESG is a political initiative that goes against the grain of the free markets. However, that is certainly not the case.
Although the concept does steer companies in a specific direction, the primary aim of ESG pertains to investor protection. For example, the governance factor’s role is to enhance the transparency of accounting practices and internal controls, subsequently providing investors with a better understanding of an entity’s true worth. Furthermore, the social factor emphasizes employment initiatives to enhance the talent pools within organizations. Lastly, the environmental factor dials in on efficient resource utilization and renewable energy implementation.
I can elaborate on the above if you want me to. However, this article isn’t a lecture. Instead, its purpose is to discuss best-in-class ESG stocks. So, with that being said, here are three top-rated ESG stocks I and numerous other analysts love.
Canadian Natural Resources (CNQ)
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Canadian Natural Resources (NYSE:CNQ) is one of the world’s largest independent oil and gas producers. Therefore, I bet many might be surprised by its inclusion in an ESG article. However, the fact of the matter is that S&P Global (NYSE:SPGI) provides CNQ stock with a high ESG score of 43, and ESG Book ranks Canadian Natural at the 18th spot among the world’s 100 leading ESG firms.
Another reason why I threw CNQ stock into the mix is its robust fundamentals, communicated once more by Canadian Natural’s third-quarter earnings release. The company achieved quarterly net earnings of C$2.3 billion and C$3.5 billion in cash flow from operations. Canadian Natural Resources fended off flimsy fossil prices with a near 2.8% increase in quarterly production. In addition, the firm lifted its quarterly dividend payout by 18% to C$4 annually.
I believe we will see strong execution from Canadian Natural Resources in 2024 as an implied rise in industrial production is set to support demand-side factors. Moreover, the firm is strong from a structural point of view, as its long-life Oil Sands Mining assets produce marginal cost advantages.
CNQ stock is favored by various investment banks’ sell-side analysts, including RBC Capital and UBS (NYSE:UBS). Furthermore, the stock’s forward price-to-earnings ratio of 11.32x and dividend yield of 4.34% imply that total returns prospects are in store.
Nvidia (NVDA)
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Unlike CNQ stock, Nvidia (NASDAQ:NVDA) is an obvious ESG pick. The company’s positioning in the electric vehicle industry means it is a primary participant in the renewable economy. According to Sustainalytics, Nvidia has a low ESG risk. Additionally, ESG Book places NVDA 62nd in its world’s top 100 ESG list.
For those unaware, Nvidia is one of the world’s salient chipmakers. Nvidia owns over 80% of the graphics processing unit (GPU) market. Its 33.8% compound annual growth forecast shows the GPU market is highly promising. Personally, I’m very excited about the developments of end markets such as deep learning and neural networks. In my opinion, the growth of unstructured data will significantly benefit Nvidia’s production mix, adding further size to its addressable market.
Furthermore, the company has developed strong fundamentals. For example, the company’s operating profit margin of 57.49% conveys economies of scale. Moreover, Nvidia’s $18.28 billion cash position allows it to acquire or spend internally with ease, contemporaneously fending off its competition.
NVDA stock’s price-to-earnings-growth ratio is well positioned at 0.47x. On top of that, the company has secular attributes communicated by its historical compound annual growth rate of 38.91%.
In closing, NVDA’s resilience is met with promising price return prospects.
Newmont (NEM)
Source: Piotr Swat/Shutterstock
Newmont (NYSE:NEM) is the world’s largest gold miner by production. The company has an outstanding ESG framework, with S&P Global assigning it a rating of 85. Moreover, ex-Anglo American Platinum (OTCMKTS:ANGPY) CEO Natasha Viljoen is set to take up the mantle as chief operating officer (COO) at Newmont, which should add substance to the company’s ESG rating.
As illustrated by its near 20% year-to-date decline, NEM stock is in a bit of a gully. However, an inflection point has emerged. Firstly, gold prices could increase in 2024 amid an interest rate pivot that could lead many investors into hedging dollar risk with gold. Furthermore, Newmont’s production could settle higher after recently acquiring Australian-based Newcrest Mining.
Another contributing factor to Newmont’s production mix is the resolved labor strike at Peñasquito. Labor strikes should lessen in 2024 as inflation finds calm. Therefore, higher mining production is likely.
NEM stock is a turnaround opportunity. The company’s operational performance was below par this year. However, its track record, paired with a potential gold price rally, suggests mean reversion is en route. At a forward price-to-book ratio of 1.66x and a dividend yield of 3.99%, I would seriously consider investing in this strong ESG stock.
On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve has passed CFA Levels 1 & 2 and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.
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