Socially Responsible Stocks

by John Bajkowski

Socially Responsible Stocks Splash image

Socially responsible investing (SRI) integrates social and ethical considerations into the stock selection process. Screens are often used to avoid poor social candidates—companies whose products and business practices are seen as harmful to individuals, communities, or the environment. Socially responsible investors also use qualitative factors to identify stocks that match their concerns, looking for companies with good employee relations, a good product safety record, operations that respect human rights or even strong community involvement.

For this First Cut, we examine stocks that are widely held by socially responsible mutual funds. The First Cut used Morningstar’s Web-based mutual fund screening tool to identify no-load, socially responsible funds. An equally weighted portfolio of these funds was entered into Morningstar’s portfolio manager. The Web site’s portfolio X-Ray tool was then used to determine the stocks most widely held by the socially responsible funds.

The First Cut table presents the 30 most widely held stocks arranged by their industry. As a group, the holdings of the socially responsible funds have a large-cap growth orientation; all of the top 30 stocks are members of the S&P 500 index. The forward price-earnings ratio (share price divided by estimated earnings for the current year) provides a general sense of valuation. The dividend yield (indicated dividend divided by share price) is indicative of the maturity of these stocks. Historical sales and earnings growth helps measure top- and bottom-line success, while the expected growth rate provides insight into expectations for these stocks. The ratio of liabilities to assets indicates the firm’s financial structure. Performance relative to the S&P 500 is measured through the 52-week relative strength index.

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John Bajkowski is president of AAII.


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