Sustainable investing is making headlines worldwide, and environmental, social, and corporate governance stocks, also known as ESG stocks have become a hot investment theme over the last few years. A younger generation of investors want to use their money to drive positive change without sacrificing financial returns.

While ESG stocks have performed at least as well, if not better, than their less-sustainable counterparts, they have also displayed more resilience in market downturns.

During the pandemic, those companies with solid ESG track records showed less volatility than their peers, confirming that good corporate behavior also means better business results.

Similarly, recent research by Morgan Stanley (NYSE:MS) highlights, “An analysis of more than 3,000 U.S. mutual funds and exchange-traded funds (ETFs) shows that sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3 percentage points in 2020.”

Governmental policies that encourage ESG-related reforms and strong investor activism offer even more reasons for businesses to adapt or better align with sustainable practices. It is no surprise that Bloomberg Intelligence (BI) expects assets under management in ESG ETFs to hit $1 trillion by 2025.

With that information, here’re three of the best ESG stocks for buy-and-hold investors in September:

• Cadence Design Systems (NASDAQ:CDNS)
• Waste Management (NYSE:WM)
• West Pharmaceutical Services (NYSE:WST)

ESG Stocks: Cadence Design Systems (CDNS)

52 week range: $97.45 – $168.61

Cadence is a leading name in the electronic design automation (EDA) industry. It develops software, hardware, and intellectual property that automates the design of chip systems. Its customers include some of the top semiconductor names.

The tech group announced Q2 results in late July. Revenue increased 14% year-over-year (YOY) to $728 million. Non-GAAP net income surged 29% YOY to $238 million, or 86 cents per diluted share, compared to a net income of $185 million, or 66 cents per diluted share, a year ago. Cash and equivalents ended the quarter at $847 billion.

“Cadence exceeded all of its key financial metrics for the second quarter and as a result we are raising our outlook for the year,” CFO John Wall remarked on the results.

Management now expects annual revenue to increase by almost 10% to $2.94 billion.

The software to design semiconductors has become more vital than ever, as transistor architecture has shifted to sub-microscopic levels of under 10 nanometers. In addition, the rapid expansion of chip applications in numerous industries keeps the demand strong.

Moreover, the Senate has recently approved a large stimulus bill for the semiconductor industry. As a result, there will soon be $52 billion for the domestic chip industry.

Analysts indicate that Cadence operates almost in a duopoly along with its peer Synopsys (NASDAQ:SNPS). Put another way, both firms are likely to benefit from these positive catalysts in the chip industry.

Potential investors might also be interested to know that MSCI (NYSE:MSCI) has a AA ESG rating on the company. CDNS stock hit an all-time high of $168.61 on Sept. 10. Now, it is around $162, up 19% year-to-date (YTD).

CDNS shares trade at 47 times forward earnings and 16 times sales. Interested readers could regard a further decline toward $155 as a better entry point.

EGS Stocks: Waste Management (WM)

52 week range:  $106.11 – $156.74

Dividend yield: 1.51%

Waste Management provides traditional solid waste services, serving commercial, residential, and industrial markets. The group is also a leading recycler in the U.S. and Canada, where it operates approximately 268 active landfills and 350 transfer stations.

Waste Management released Q2 results in late July. Revenue increased 26% YOY to $4.48 billion. Adjusted net income surged 44% YOY to $538 million, or $1.27 per diluted share, up from an adjusted net income of $372 million in the prior-year period.

The company generated free cash flow of $649 million. Cash and equivalents ended the quarter at $297 million.

“In the second quarter, as adjusted operating EBITDA grew 28%, adjusted operating EBITDA margin expanded 50 basis points, and we generated more than $1 billion of cash from operations,” CEO Jim Fish remarked following the announcement.

As the world becomes increasingly focused on adopting ESG stocks, the company is currently exploring the market for the reuse of organic compounds for mechanical and chemical processes.

WM stock hit an ATH of $156.74 in early September. It currently hovers at slightly above $150 territory, up almost 30% YTD. The company is also on track to become a Dividend Aristocrat, as it has increased its dividend payment for 18 consecutive years.

Waste Management is a solid ESG stock that offers significant upside potential as well as a steady cash flow for income investors. Forward price-to-earnings (P/E) and price-to-sales (P/S) ratios stand at 27.93 and 3.92, respectively. A move below $150 would make the shares more attractive for long-term buyers.

ESG Stocks: West Pharmaceutical Services (WST)

52 week range:  $253.85 – $475.35

Dividend yield: 0.15%

West Pharmaceutical Services is a medical supplier to the pharmaceutical, biotechnology, and generic drug industries. The company manufactures and sells delivery systems for injectable drugs and other healthcare products.

West Pharmaceutical issued Q2 results in late July. Revenue soared 37% YOY to $724 million, thanks to packaging for Covid-19 vaccines.

Net income came in at $187 million, or $2.47 per diluted share, compared to a net income of $91 million, or $1.21 per diluted share, in the previous year. Free cash flow declined 11% to $122 million. Cash and equivalents ended the quarter at $576 million.

“Our strong second-quarter performance was driven by continued momentum in organic sales growth in both our base business as well as increased demand for our products associated with COVID-19 vaccines,” said CEO Eric M. Green.

The manufacturer has a promising long-term growth outlook and a secure competitive position. A large number of companies use its vaccine packaging products as well as other supplies.

In recent quarters, West Pharmaceuticals has seen strong sales for its high-value products. Management’s ESG efforts have also been recognized with a number of high rankings.

WST stock hovers just short of $450 territory and is up about 58% YTD. Given the company’s strong outlook for 2021, the rally in the shares could easily continue in the near term.

Forward P/E and current P/S ratios stand at 48.78 and 13.51, respectively. “Buy” and “hold” investors might wait for a pullback toward $420.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.