In this article, we discuss the 5 cheap ESG stocks to invest in. If you want to read our detailed analysis of these stocks, go directly to the 10 Cheap ESG Stocks To Invest In.
5. Steel Dynamics, Inc. (NASDAQ:STLD)
Number of Hedge Fund Holders: 26
PE Ratio: 6.00
The increase in demand for steel in the post-pandemic economy, as well as an increase in pricing because of supply chain pressures, has benefited Steel Dynamics, Inc. (NASDAQ:STLD) in the past few weeks. The company recently posted market-beating earnings for the third quarter but concerns about pricing have led to some analyst downgrades. Morgan Stanley recently highlighted that steel prices may have peaked. The company was recently named on a list of 100 Best ESG Companies of 2021 by Investor’s Business Daily. It was the only steel producer on the list.
In order to prepare for supply chain issues in the future, Steel Dynamics, Inc. (NASDAQ:STLD) announced last month that it had acquired a 45% stake in New Process Steel, a steel supply chain company.
At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $538 million in Steel Dynamics, Inc. (NASDAQ:STLD), the same as in the preceding quarter worth $570 million.
4. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 39
PE Ratio: 4.20
eBay Inc. (NASDAQ:EBAY) has remarkably stayed relevant in the ecommerce world despite tough competition from the likes of Amazon, Walmart, and several other internet-based ecommerce businesses. Despite beating market estimates on earnings per share and revenue in the third quarter results, the share price has pulled back in the past few days due to disappointing guidance numbers from the firm. The very business model of the firm is based on ESG beliefs as it prefers to sell second-hand and used items. A significant chunk of the revenue of the firm is thus considered environment-friendly.
KeyBanc analyst Edward Yruma recently maintained an Overweight rating on eBay Inc. (NASDAQ:EBAY) stock and raised the price target to $90 from $80, noting that the third quarter results pointed to the building momentum of the company in key categories.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Baupost Group is a leading shareholder in eBay Inc. (NASDAQ:EBAY) with 14 million shares worth more than $1 billion.
In its Q4 2020 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and eBay Inc. (NASDAQ:EBAY) was one of them. Here is what the fund said:
“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
3. Hologic, Inc. (NASDAQ:HOLX)
Number of Hedge Fund Holders: 41
PE Ratio: 9.39
Evercore ISI analyst Vijay Kumar upgraded Hologic, Inc. (NASDAQ:HOLX) stock to Outperform from In Line with a price target of $78 in July, underlining that the company was sticking to a core competency and making smart acquisitions in the base business. One of the smart purchases has been Bolder Surgical, a commercial stage developer of surgical products, for $160 million in October. The move will add to the impressive product line of Hologic. In the ESG bracket, the company sets annual goals to improve women leadership in healthcare, reduce carbon emissions, and improve health access for underserved communities. It releases a sustainability report to underline progress on each.
Hologic, Inc. (NASDAQ:HOLX) also had solid fundamentals. In late July, the firm had reported earnings for the third quarter, posting earnings per share of $1.33, beating predictions by $0.21. The revenue over the period was $1.1 billion, up 42% year-on-year.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Hologic, Inc. (NASDAQ:HOLX) with 2.2 million shares worth more than $149 million.
2. Flex Ltd. (NASDAQ:FLEX)
Number of Hedge Fund Holders: 43
PE Ratio: 8.57
Flex Ltd. (NASDAQ:FLEX) announced on October 18 that it had purchased Anord Mardix, a critical power distributor, from investment firm Bertram Capital in a deal worth $540 million. The purchase is part of a plan to expand presence in the data center market. The company offers electronic manufacturing services to original equipment manufacturers. It is headquartered in Singapore and was founded in 1990. In 2020, the firm achieved 92% growth in sustainable energy use year-on-year and even used ESG standards to screen all new global suppliers it conducted business with.
In May, investment advisory Citi reiterated a Buy rating on Flex Ltd. (NASDAQ:FLEX) stock and raised the price target to $25 from $22, noting that the new management had the ability to unlock “value and gems” within the business.
At the end of the second quarter of 2021, 43 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Flex Ltd. (NASDAQ:FLEX), down from 48 the preceding quarter worth $1.6 billion.
In its Q4 2020 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and Flex Ltd. (NASDAQ:FLEX) was one of them. Here is what the fund said:
“Our third quarter addition of contract manufacturer Flex provides a great example. Originally an electronics-focused outsource manufacturer with highly cyclical cash flows and short product lifecycles, the company has evolved its customer base toward the capital goods, automotive and healthcare industries. Having successfully recast itself as a longer-cycle, “new industrial,” Flex’s stock is benefitting from more stable and diversified cash flows and more consistent revenue growth. CEO Revathi Advaithi joined in early 2019 and she has refocused the company by accelerating the transition to these longer-cycle businesses. Moreover, the company has been shareholder oriented, using the company’s ample free cash to reduce shares outstanding by 35% in the last decade. Lastly, Flex’s Nextracker division should provide nice upside. The solar tracking company manufactures motors, software and systems for utility-scale power generation projects and business is growing quickly as the shift toward sustainable energy sources hastens. We believe Nextracker is underappreciated and could represent a significant amount of hidden value. At 13 times earnings Flex is a very attractive risk reward opportunity.”
1. Mohawk Industries, Inc. (NYSE:MHK)
Number of Hedge Fund Holders: 44
PE Ratio: 3.55
Mohawk Industries, Inc. (NYSE:MHK) recently posted earnings for the third quarter, reporting earnings per share of $3.95, beating predictions by $0.15. The revenue over the period was $2.8 billion, up more than 9% year-on-year. The increase in oil and gas prices in recent weeks has resulted in higher transportation costs for the firm. Coupled with demand problems, the share price has pulled back in the past few days.
Mohawk Industries, Inc. (NYSE:MHK) makes and sells flooring products. As part of an ESG initiative, the company also offers sustainable carpeting and flooring options. The company also aims to offset energy used to make products by installing solar units in remote communities.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Pzena Investment Management is a leading shareholder in Mohawk Industries, Inc. (NYSE:MHK) with 1.6 million shares worth more than $308 million.
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