Ethical options for investing in the aftermath of coronavirus
March’s stock market crash was brought on by coronavirus lockdowns and an untimely oil price war, but the contagion dragged down a lot of good stocks with the bad. If you catch yourself rejoicing over oil’s demise, here are a few more ethical investment options that could be considered “on sale.”
While stock market analysts’ opinions are split between those who expect a V-shape recovery and those who expect a retest of the March lows, the first step in seizing the moment — whenever you decide the timing is right — is identifying which investments are good candidates for post-coronavirus capital gains.
Of the stock market sectors that have performed best since the crash started, precious metals lead the way, followed by healthcare stocks and consumer staples, so those are good places to look first.
As you browse our list, note that different people have different definitions of what qualifies as an ethical stock or industry, so use your own judgment to filter these ideas.
While the obvious red flag for miners is the damage they can create to the environment, even clean, renewable energy sources like wind can have negative effects on surrounding ecosystems, particularly for bats and birds. You’ll have to balance out the pros and cons.
As such, none of the many mining companies listed on US stock exchanges made Ethisphere’s 2020 World’s Most Ethical Companies list.
- Gold (GLD): The standout performer among the major metals, it has set a new high since late February. And due to its value, gold is one of the most recycled materials in the world.
- Silver (SLV): While mediocre in its resilience to the crash, silver has far more industrial uses than gold, and it’s an instrumental component in two huge trends that have been playing out: solar panels and electronics, both for smartphones and for 5G technology.
- Battery metals: While cheaper gas will provide headwinds against electric vehicle makers like Tesla, the broader trend toward EVs and renewable energy storage may bolster key metals used in batteries, including lithium (LIT), nickel (JJN, VALE and GLNCY), cobalt (GLNCY and VALE) and manganese (SOUHY and VALE).
- Uranium (URA): While not renewable, nuclear energy is a zero-emission source of power, and uranium is the key ingredient used in nuclear power generation.
The healthcare sector as a whole is down just 5% from its 2020 high. As the world strives to get back to normal, hospitals will have lots of work to catch up on non-life-threatening appointments and elective surgeries that were delayed during the lockdown, and pharmaceutical companies will be busy developing treatments and vaccines for COVID-19.
Plus, these individual stocks were highlighted on Ethisphere’s most ethical list.
- Healthcare ETF (XLV): This basket of stocks tracks healthcare companies in the S&P 500. And it gets an A rating by MSCI for environmental, social and governance factors.
- Eli Lilly (LLY): Already up nearly 10% above its precrash high, it’s a global pharmaceutical giant with experimental coronavirus drugs in the works.
- Henry Schein (HSIC): A distributor of medical supplies, though it’s down more than 30%.
People need to buy essential goods even in lockdown, which is why this sector of the stock market has fared better than most others.
Here’s an ETF that tracks the entire sector and a few of Ethisphere’s most-ethical picks for stocks.
- Consumer staples ETF (XLP): Similarly rated for ESG factors as XLV, this basket of stocks tracks S&P 500 companies that make consumer staples.
- Kimberly-Clark (KMB): Here’s the ethical toilet paper pick that makes sanitary paper products, personal care items and even some medical supplies. And it’s held up well amid the market crash.
- Colgate-Palmolive (CL): The stock price of this household and personal care essentials giant is back to where it was in January.
Better energy alternatives
If you’re going to give in to the temptation to scoop up cheap energy stocks, you have a few more ethical choices than crude oil. For starters, the next incremental change to cleaner electricity generation is natural gas. Given that renewables aren’t likely to gain traction while fossil fuels are dirt cheap, you could say that natural gas is a lesser evil. And it was already cheap before falling further alongside oil’s pain.
While investing in the price of natural gas itself is an option through the US Natural Gas Fund (UNG), there are other ways to play this too. Regulated utilities will profit more from lower natural gas prices.
Here are a few of the largest:
- Atmos Energy (ATO), the largest natural gas–only utility in the US, has shown decent resilience in the face of the crash — far better than oil has.
- Sempra Energy (SRE), one of the world’s largest natural gas utilities, isn’t far behind Atmos, though Moody’s has expressed some concern about its financial strength.
- Xcel Energy (XEL) is a more diversified utility that’s listed on Ethisphere’s list and is trading back where it was in mid-January.
- NextEra Energy (NEE) is trailing Xcel in performance, but it’s a major champion for renewables and reducing our dependence on foreign oil.
If you don’t want to try picking winners and have faith in ethical companies for the long haul, you could consider robo-advisor portfolios that are tailored to ethical themes. Both Wealthsimple and Personal Capital, for example, have socially responsible portfolios.