Stock Analysis & Ideas

Two Promising ESG Investment Stocks to Drive Your Portfolio in 2022

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As socially responsible or ESG investing gains prominence, we explain what it is and present two promising names in this space that could drive your portfolio.

What is ESG Investing?

In recent times, different quarters of the market have been leaning toward socially responsible investing, or sustainable investing, aka environmental, social, and governance (ESG) investing. This approach seeks to invest in companies’ stocks that are having a positive impact, like Xylem stock (XYL) (GB:0M29) and NextEra Energy stock (NEE) (GB:0K80). ESG investing considers companies focusing on sustainable development, clean energy, social justice, or working towards mitigating climate change.

One name that has been at the forefront of this wave is Bill Gates, the founder of Microsoft. Gates recently picked up shares worth $77 million in Ecolab (ECL) (GB:0IFA), which provides water, hygiene, and infection prevention solutions in more than 170 countries. Let us look at two promising names in the ESG space that could boost your portfolio.

Xylem (XYL) (GB:0M29)

Xylem is a water technology company providing solutions for optimizing water usage and resource management. Its offerings enable communities in over 150 countries to become water secure.

Its three business segments, Water Infrastructure (water delivery, wastewater transport, and treatment), Applied Water (businesses in industrial, residential, and commercial building), and Measurement and Control Solutions (smart meters, analytics, and network technologies), are dedicated to better manage water resources.

Further, Xylem’s efforts to decarbonize the water sector helped it bag the Net Zero Carbon Champion award at the 2022 Global Water Awards this year. Impressively, its offerings prevented over 500 billion gallons of polluted water from flooding in 2021. The company also helped its clients reuse over 285 billion gallons of water last year.

Is Xylem Stock a Buy?

Four out of 13 analysts who have rated Xylem stock in the past three months think it is a Buy. Argus Research analyst John Eade has reiterated a Buy rating on XYL stock while increasing the price target to $115 from $100. This implies a 19.6% potential upside for the stock on top of the nearly 14% price gain over the past month. Overall, the Street has a Moderate Buy consensus rating on Xylem stock alongside an average price target of $96.90.

NextEra Energy (NEE) (GB:0K80)

With a capacity of 58 GW (gigawatt), NextEra is a leading name in clean energy. It owns Florida Power & Light Company, the largest electric utility in the U.S. Its clean energy unit, NextEra Energy Resources, is the world’s largest producer of energy from wind and sun.

NextEra bagged the S&P Global Platts 2020 Energy Transition Award for its progress on the ESG front. This year it has set the Real Zero goal to make its operations carbon emissions-free by 2045. It pegs the drive to decarbonize the U.S. economy as a $4 trillion market opportunity. NextEra plans to generate only carbon emission-free energy via a mix of solar, wind, green hydrogen, nuclear, battery storage, and other renewable energy sources.

Moreover, NextEra estimates reaching this goal could also create 150,000 jobs and contribute $15 billion to Florida’s gross domestic product (GDP) by 2045. What’s more, the company is expected to be a beneficiary of the Climate Bill.

Is Nee a Buy or Sell?

Eight out of 12 analysts who have rated NEE stock in the past three months have rated it a Buy. J.P. Morgan’s Jeremy Tonet has reiterated a Buy rating on NEE stock and sees a 20.48% potential upside based on a price target of $106. Overall, the Street has a Moderate Buy consensus rating, with an average NextEra price target of $94.36.

Is Socially Responsible Investing Worth it?

Socially responsible or ESG investing continues to gain ground as the world witnesses the devastating and now recurrent impacts of climate change. In this dynamic, both Xylem and NextEra are playing a key role in making capitalism more sustainable.

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