What are we looking for?
Companies with high analyst sentiment that emphasize a diverse and inclusive workplace.
The screen
The topic of sustainable finance, often referred to as ESG, has become an integral part of investment decision-making, as investors have become more conscious of factors – such as diversity and inclusion – that make up the environmental, social and governance framework.
Yet there are many who believe that putting too much focus on ESG can hinder portfolio returns. Today we look to debunk that theory by evaluating blue-chip companies with high diversity and inclusion scores, in addition to high analyst sentiment.
- First, we screen for companies traded in North America with a market capitalization of US$60-billion.
- Next, we screen for companies with a diversity and inclusion rating (DIR) of 60 or higher, out of 100. Diversity and inclusion ratings powered by Refinitiv ESG data are designed to measure the relative performance of companies transparently and objectively against factors that define diverse and inclusive workplaces. The model selects 24 measures relevant to diversity and inclusion and each is assigned to one of three pillars: diversity, inclusion, and people development. The model also incorporates controversies reported in the news that may negatively affect the DIR.
- Lastly, we screen for companies with an analyst revision model (ARM) score of 80 or higher. The ARM score is a percentile ranking of stocks based on changes in analyst sentiment. The model looks at changes to sell-side analysts’ estimates of earnings, revenue, and earnings before interest, taxes, depreciation and amortization (EBITDA), as well as changes in the buy/hold/sell recommendations of those analysts. The ARM is highly predictive of stock price movement.
More about Refinitiv
Refinitiv, a London Stock Exchange Group business, is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges, and scale intelligently.
What we found
The screen, ranked by a combination of Refinitiv diversity and inclusion ratings and StarMine’s analyst revision model, produced nine companies. Here are a couple to highlight.
Bank of Montreal ranked second highest on the list with a DIR score of 74.3, largely because BMO has dedicated resources to create a more diverse and inclusive workplace. Its initiatives have not hindered the stock’s performance. Over the past year its shares gained 33.9 per cent on a total return basis, compared with the Canadian banking sector over all, which tallied an average total return of 21.9 per cent. BMO has also positioned itself well for an interruption in the rising Canadian housing market. It has the lowest exposure to the housing market over all compared with its peers, according to Morningstar Research.
Nvidia Corp., which scored a 60 on its DIR, is a leading designer and manufacturer of graphics processors. Nvidia generated the second-highest ARM score (91) and second-highest total return (95.7 per cent) on the list. Analysts who cover the company have been very bullish, continually revising estimates and price recommendations over the past year. Currently, of the 47 analysts that provide a target price and recommendation on the stock, 39 of them are either a buy or strong buy. In addition, there is major growth potential for Nvidia. The company produces a graphics chip that is proprietary and heavily relied on by companies in the artificial-intelligence space.
Investors are advised to do their own research before trading in any of the securities shown.
Full disclosure: The author owns BMO shares.
Erik Foo, CFA, is a proposition sales specialist at Refinitiv, covering research and portfolio management sales.
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