We recently compiled a list of the 7 Best Ethical Companies To Invest In According to Reddit. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against the other ethical companies to invest in.
Ethical investing involves choosing investments based on ethical principles, such as environmental, religious, or social values. Unlike socially conscious investing, which follows a specific set of guidelines, ethical investing is more individualized. Investors typically avoid being involved in gambling, alcohol, or firearms, and carefully research to make sure their investments align with their values.
Other stocks that are avoided by ethical investors include the shares of companies where employees are mistreated, have high gender parity, or discriminate against employees due to their race, religion, or sexual orientation. Environmentally conscious companies are also a huge part of ethical investing.
Is Ethical Investing the Future?
A 2022 report by Stamford University noted that the younger generation considers ethical investing quite crucial. A 2022 survey of 2,470 individual investors, conducted by Stanford University’s Rock Center for Corporate Governance, found significant differences in Environmental, Social, and Governance (ESG) preferences based on age and wealth. Younger and wealthier investors are more likely to support ESG initiatives, even at the expense of returns, while older and less wealthy investors are generally opposed.
Over recent years, support for ESG proposals has surged, with average support among S&P 500 companies increasing from 18% in 2012 to 35% in 2021, and the number of proposals passed rising from 0 to 28. The survey found that 70% of young investors (18-41 years old) are very concerned about environmental issues, compared to only 35% of older investors (58+ years old). Similarly, 65% of young investors are very concerned about social issues, versus 30% of older investors. When it comes to governance, 64% of younger investors express significant concern, while only 28% of older investors do.
Moreover, 86% of older investors would not give up any or only a trivial amount of returns for carbon emission reductions, while 64% of younger investors would give up moderate or large amounts. Additionally, 91% of older investors are unwilling to sacrifice returns for workplace diversity improvements, compared to 62% of younger investors who are willing to do so.
The survey also found that investor attitudes towards ESG differ across fund companies. Investors in State Street and Invesco funds exhibit nearly twice the concern for environmental issues compared to those in Fidelity funds. A significant percentage of investors in Fidelity (40-45%) and Vanguard funds are unwilling to forfeit returns for ESG, while a smaller percentage in American Funds and BlackRock (25-30%) share this reluctance.
Despite these differences, 83% of investors across all demographics believe that fund managers should consider their views when voting on ESG issues. The results suggest that fund managers might need to allocate votes on a proportional basis to reflect the diverse preferences of their investor base.
Our Methodology
For this article, we scoured through several threads to discover which companies were considered ethical according to the users. We narrowed down the list to 7 stocks that were most widely mentioned and used the hedge fund sentiment of each stock as a tie-breaker. The companies are listed in ascending order of the number of hedge fund holders as of the second quarter of 2024. The hedge fund data was taken from our database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer in a warehouse aisles, browsing the wide range of branded and private-label products.
Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
One of the best ethical companies to invest in, Costco Wholesale Corporation (NASDAQ:COST) is a warehouse club that operates on a membership basis, offering a wide range of products. Established in 1983, the company runs over 800 warehouses globally and is one the largest membership warehouse chains in the U.S.
The company provides a broad range of items such as groceries, household essentials, appliances, apparel, tires, tools, sporting equipment, beauty products, garden supplies, and electronics. Among its offerings is the Kirkland Signature private label, which is highly popular among its members.
According to a report published in 2022 by Vidyalankar School of Information Technology, Costco (NASDAQ:COST) is one of the most respected companies globally, largely due to its ethical approach to business and employee treatment. Known for its commitment to fair practices, it pays its workers around 40% more than competitors like Walmart and Target, while also offering better health and retirement benefits.
This investment in employees not only reduces turnover costs but also improves overall productivity and customer service. While talking at an event at the Michael G. Foster School of Business, co-founder and former CEO, James Sinegal emphasized that treating employees well and delivering great value to customers are key to successful business operations.
In July, the company implemented an increase in the starting pay and maximum pay for several key roles, including service assistants and meat cutters. This wage hike raises the starting hourly wage to $19.50, which represents a 5.4% increase for the lowest-paid workers. Incremental wage steps based on seniority are also set to rise by $0.50.
According to the Society for Human Resource Management, this move is designed to ensure that Costco’s (NASDAQ:COST) wages stay competitive within the retail industry, particularly when compared to the average salary increases of around 4% to 4.5% that other companies are offering for 2024.
The company’s approach to employee compensation is part of a broader strategy that includes promoting from within. The majority of its management team, including those in various departments such as warehouse and merchandise management, have been promoted from lower-level positions within the company. This commitment to internal career advancement helps the company retain skilled employees and maintain a motivated workforce. It is one of the best ethical companies to invest in.
The appeal of the company goes beyond its ethical practices, Costco’s (NASDAQ:COST) membership-based model is a significant asset. This model generates a steady and attractive revenue stream, with membership fees bringing in $1.1 billion in the third quarter of fiscal 2024, a 7.6% increase from the previous year. The predictability and stability of this income contribute to the company’s financial strength.
As of the second quarter, 71 hedge funds tracked by Insider Monkey had stakes in Costco (NASDAQ:COST), with positions worth $5.95 billion. Fisher Asset Management emerges as the company’s largest shareholder as it owns a $2.5 billion stake, as of June 30.
ClearBridge Investments stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
Overall COST ranks 3rd on our list of best ethical companies to invest in. While we acknowledge the potential of COST as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.