Green Investing: Four Stocks With Falling Emissions and Rising Profits

Green Investing: Four Stocks With Falling Emissions and Rising Profits

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Worried about climate change? These green stocks could make your portfolio more eco-friendly. 

The United Nations’ 19th annual Climate Change Conference concluded on Saturday with little progress made in the effort to reduce greenhouse gas emissions and combat global warming. This had been viewed as an opportunity to lay the groundwork for the formation of a universal climate agreement - to replace the Kyoto Protocol – at the 2015 session in Paris.

Instead, after two weeks marked by a hunger strike, walkouts, and general discord, the 195 countries ultimately acquiesced to modest compromises. Delegates decided to replace “commitments” with “contributions” in the language of the to-be-drafted 2015 deal to appease India and China, both of whom believe their developing economies shouldn’t be held to the same standards as developed nations.

Read more about Green Investing: 5 Natural Food Stocks With Dividends

The conference also led to the decision to establish a “loss and damage mechanism” to help vulnerable countries with loss and damage attributed to climate change. And lastly, developed countries were asked, instead of required, to submit details of their plans to honor a climate finance pledge to provide $100 billion in funding to developing nations by 2020.

Going green and seeing green

While the US government has yet to firmly commit to combating climate change, several US business have taken the initiative to enact greenhouse gas emission reduction policies. The UK-based CDP (formerly known as the Carbon Disclosure Project) - an independent, not-for-profit organization - tracks, measures, and publishes information regarding the environmental impact of companies across the globe.

In September, the CDP released its S&P 500 Climate Change Report 2013, an annual study of greenhouse gas emissions and climate change policies at the biggest corporations in the US:

  • S&P 500 companies invested $50 billion in emission reduction, saved 129 megatons of CO²e (embodied carbon), and reported $4 billion in savings in 2012.

  • 85%, or $3.5 billion, of the savings came from twenty companies on the index.

  • 20 companies were responsible for almost 90% of all carbon emission reductions.

In addition to illustrating the trends and results of companies’ emission reduction strategies, the CDP’s findings challenge the belief that reducing emissions will hinder GDP growth. According to the report, emissions from S&P 500 companies fell by an average annual rate of -2.9% last year while the US GDP grew by an average rate of 1% and the S&P compound annual rate by 14.3%. The CDP states, “Not only did S&P 500 respondents reduce emissions in a growing economy, but they also increasingly attribute such reductions to their own designed efforts.”

Investing ideas

The CDP’s S&P 500 Climate Change Report 2013 includes scores, emissions, and details for each company on the index. Companies with the highest performance scores are listed in the Carbon Performance Leadership Index. Firms with effective and comprehensive climate change strategies, as demonstrated by significant emission reduction, are placed within the “A” band.

We began with a universe comprised of the S&P 500 stocks included in the “A” band of the Carbon Performance Leadership Index. Since the CDP report showed that economic growth and emission reduction can occur simultaneously, we decided to look for signs of increasing profitability within that universe of stocks. Specifically, we screened for stocks with rising diluted normalized earnings per share (EPS) for the past three consecutive years.

EPS refers to the amount of profit allocated per outstanding share of common stock. And investors should note, diluted normalized EPS tends to be both lower and more conservative than normalized EPS.

We were left with four stocks on our list.

Click on the interactive chart below to see sales data over time.

Do you think climate change strategies play a role in the rising profits of these green stocks? Use this list as a starting point for your own analysis.

1. CSX Corp. (CSX, Earnings, Analysts, Financials): Provides rail-based transportation services.

Market cap at $27.81B, most recent closing price at $27.35.

Diluted normalized EPS increased from 0.95 to 1.35 during the first time interval (53 weeks ending 2010-12-31 vs. 52 weeks ending 2009-12-25).

For the second time interval, diluted normalized EPS increased from 1.35 to 1.67 (52 weeks ending 2011-12-30 vs. 53 weeks ending 2010-12-31).

And for the last time interval, the EPS increased from 1.67 to 1.79 (52 weeks ending 2012-12-28 vs. 52 weeks ending 2011-12-30).

2013 Emission reduction score: 95 A.
 

2. Ecolab Inc. (ECL, Earnings, Analysts, Financials): Develops and markets products and services for the hospitality, foodservice, healthcare, and industrial markets primarily in the United States.

Market cap at $32.37B, most recent closing price at $107.46.

Diluted normalized EPS increased from 1.96 to 2.25 during the first time interval (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).

For the second time interval, diluted normalized EPS increased from 2.25 to 2.3 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31).

And for the last time interval, the EPS increased from 2.3 to 2.74 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31).

2013 Emission reduction score: 98 A.
 

3. Estee Lauder Companies Inc. (EL, Earnings, Analysts, Financials): Engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide.

Market cap at $29.09B, most recent closing price at $75.01.

Diluted normalized EPS increased from 1.47 to 1.91 during the first time interval (12 months ending 2011-06-30 vs. 12 months ending 2010-06-30).

For the second time interval, diluted normalized EPS increased from 1.91 to 2.3 (12 months ending 2012-06-30 vs. 12 months ending 2011-06-30).

And for the last time interval, the EPS increased from 2.3 to 2.68 (12 months ending 2013-06-30 vs. 12 months ending 2012-06-30).

2013 Emission reduction score: 96 A.
 

4. Lockheed Martin Corporation (LMT, Earnings, Analysts, Financials): Engages in the research, design, development, manufacture, integration, operation, and sustainment of advanced technology systems and products in the areas of defense, space, intelligence, homeland security, and government information technology in the United States and internationally.

Market cap at $45.26B, most recent closing price at $140.88.

Diluted normalized EPS increased from 7.63 to 7.63 during the first time interval (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31).

For the second time interval, diluted normalized EPS increased from 7.63 to 8.14 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31).

And for the last time interval, the EPS increased from 8.14 to 8.46 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31).

2013 Emission reduction score: 91 A.
 

 

 

(List compiled by Mary-Lynn Cesar. EPS data sourced from Yahoo! Finance. Emission score data sourced from the CDP. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from Finviz.)

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