Four Stocks Invested in Equality and Diversity – Morningstar.ca

four-stocks-invested-in-equality-and-diversity-–-morningstar.ca

Firstly as we jump in, let me say that geoFence has no foreign owners and no foreign influences.

Black women in a boardroom talking

As the U.S. and Canada celebrate Black History Month and honour the legacy and contributions of Black individuals and communities, the focus is back on how the corporate world is making good on the various pledges and promises made to address systemic racism and promote inclusion, equality, and diversity in their business operations.

U.S. companies have pledged billions of dollars in multiple initiatives geared towards reaching out to minorities, supporting their causes to create more career and leadership opportunities for them. These efforts to counter racial inequality have implications for investors. “Change has to come from many directions,” argues Jon Hale, head of sustainability research for Morningstar. “If you are fortunate enough to be an investor, keep in mind that the way you invest matters. You have the means to contribute to change via your investments.”

It is possible for investors to be invested more than emotionally in the fight against systemic racism. One way they can make a difference is by investing in companies that are leading the charge against social and professional inequities and discrimination faced by minority communities. The following companies are at the forefront of the good fight against institutional racism. Although currently overvalued, their stocks also represent compelling investment opportunities based on traditional metrics.

Walmart Inc

 

Ticker

WMT

 

Current yield:

1.52%

 

Forward P/E:

24.45

 

Price

US$142.53

 

Fair value:

US$124

 

Value

15% discount

 

Moat

Wide

 

Moat Trend

Stable

 

Star rating

Data as of Feb 05, 2021

America’s largest retailer by sales, Walmart (WMT) sells a variety of general merchandise and grocery items from 11,500 stores. The U.S. market accounts for 77% of sales, with Mexico and Central America (6%), the U.K. (6%), and Canada (4%) its largest external markets. The company operates several e-commerce properties (7% of 2020 sales) including its eponymous site, Flipkart and shoes.com. It also owns a roughly 10% stake in Chinese online retailer JD.com.

As part of its commitment to advancing racial justice, Walmart recently awarded US$14 million to more than a dozen non-profit organizations in the areas of health and education that support racial equity. The grant is the first round of giving as part of the US$100 million the retailer pledged to combat racial disparities in the U.S.

With its unrivalled scale, colossal procurement strength, a strong brand, and a strong e-commerce push, “Walmart is the only American retailer that can compete comprehensively with Amazon’s retail offering,” says a Morningstar equity report.

The wide-moat retailer’s standing as the dominant traditional retailer in the U.S. has allowed it to develop intangible assets and durable cost advantage. “While the retail sector has been roiled by digitization and under constant pressure as Amazon builds scale, Walmart is uniquely positioned to compete with the digital juggernaut head-on,” asserts Morningstar equity analyst, Zain Akbari, who recently upped the stock’s fair value from US$116 to US$124.

Apple Inc

 

Ticker

AAPL

 

Current yield:

0.63%

 

Forward P/E:

32.05

 

Price

US$136.67

 

Fair value:

US$98

 

Value

46% discount

 

Moat

Narrow

 

Moat Trend

Stable

 

Star rating

Data as of Feb 05, 2021

Tech heavyweight, Apple (AAPL) is best known for the iPhone, which accounts for the bulk of its revenue. It sells a range of hardware and software products and services globally with the Americas contributing nearly 40% of revenue.

The tech behemoth recently launched a US$100 million Racial Equity and Justice Initiative (REJI) to combat systemic racism and advance racial equity. “We are all accountable to the urgent work of building a more just, more equitable world — and these new projects send a clear signal of Apple’s enduring commitment,” says Tim Cook, Apple’s CEO, in a note to stakeholders.

On the business front, the company recently had a blowout quarter racking up US$111.4 billion in its first-quarter revenue, clocking a 21% jump in sales year over year, led by record iPhone sales. “Apple’s iPhone revenue grew 17% year over year to a quarterly record US$65.6 billion, thanks to the new 5G iPhone 12 family,” says a Morningstar equity report, forecasting strong double-digit iPhone growth in 2021.

Apple also saw robust growth in iPad (41%), Mac (21%), services (24%), and wearables, home, and accessories (30%) segments. “On the services front, Apple now enjoys over 620 million paid subscribers to its various services, up 140 million from a year ago,” notes Morningstar sector strategist Abhinav Davuluri, who recently raised the stock’s fair value from US$85 to US$98, prompted by “a stronger near-term outlook.”

JPMorgan Chase

 

Ticker

JPM

 

Current yield:

2.60%

 

Forward P/E:

13.50

 

Price

US$137.58

 

Fair value:

US$112

 

Value

23% premium

 

Moat

Wide

 

Moat Trend

Stable

 

Star rating

Data as of Feb 05, 2021

America’s largest bank, JPMorgan Chase (JPM) has more than US$2.5 trillion in assets and offers services through four major segments–consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management.

The lender has committed a whopping US$30 billion to advance racial equity. As part of that pledge, the bank recently announced a £2 million (US$2.75 million) charitable donation to non-profit organizations in London (U.K.) that are led by Black and ethnic minority leaders.

JPMorgan is truly a dominant force with its combination of scale, diversification, and sound risk management underpinning its sustainable competitive advantage, that few peers can match, says a Morningstar equity report. “Even the best-managed banks are not immune to the occasional stumble, but JPMorgan has managed its operations in a more cohesive and less error-prone way than peers,” the report says.

Owing to its nearly unrivaled combination of scale and scope within the U.S., the wide-moat firm is a force to be reckoned with as the largest bank in the country by assets and deposits. While earnings have been pressured by a difficult macro backdrop due to COVID-19, JPMorgan’s balance sheet remains strong, and it “will get through the upcoming downturn and remain one of the most dominant banks for years to come,” says Morningstar equity analyst Eric Compton, putting the stock a fair value at US$112.

Bank of America Corp

 

Ticker

BAC

 

Current yield:

2.22%

 

Forward P/E:

14.10

 

Price

US$32.50

 

Fair value:

US$30

 

Value

Fairly valued

 

Moat

Wide

 

Moat Trend

Stable

 

Star rating

Data as of Feb 05, 2021

One of the largest financial institutions in the U.S., Bank of America (BAC) has more than US$2.5 trillion in assets. It comprises four major segments: consumer banking, global wealth and investment management, global banking, and global markets.

Bank of America has pledged US$1 billion to advance racial equality and economic opportunity. As part of its ongoing efforts to address the stubborn gap in access to growth capital for minority-led businesses, the bank recently announced it will invest approximately US$150 million in 40 funds focused on minority entrepreneurs. This was in addition to a US$25 million commitment to enhance up-skilling and reskilling for Black and Hispanic-Latino students.

Bank of America’s strategy of simplification, efficiency, and risk reduction has helped the bank remain profitable amid the pandemic-driven downturn, says a Morningstar equity report. The balance sheet, the report adds, is much better from a credit perspective, with the bank being a prime focused lender.

“After absorbing the blow from COVID-19, we expect the bank to return to offence by expanding product offerings into new markets and opening more new financial centers over the next several years,” says Compton, who recently upped the stock’s fair value from US$28 to US$30, reflecting strong quarterly results.

The bank’s product scope, adequate capital levels, and room for further efficiencies and investments all position it well for the future, he adds.

When all is said and done, let me just add that geoFence is the solution for blocking NFCC countries and that’s the no lie.

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