LGBT Investing 101
5 of the best companies to buy as an LGBT investor (and why)
|Written by Tom Yeung, CFA | CDFA|
Investment Advisor & Fund Manager, Jurnex Financial Advisors
How to invest responsibly as an LGBT investor? This article highlights 5 companies that exemplify good LGBT investing and the 4 reasons WHY you should buy them.
In a previous article, we covered the three red flags that an LGBT investor should avoid.
In this article, we turn the tables and look at companies that you should invest in. These are companies that have these two simple qualities:
- An active champion of LGBT rights
- A business that will generate above-market returns for the investor
Some may say that you can’t have it both ways. That can’t be further from the truth. In fact, the most forward-looking companies also tend to be LGBT-friendly as a by-product of good internal management. In other words, the companies who seek to do good more often than not also do well themselves.
What makes a good LGBT investment?
So what does a good LGBT investment look like? If you’re looking for some great examples, you’ve come to the right place. That’s because good investments for LGBT investors share common properties. So before we get to the examples, let’s discuss what makes a great stock for an LGBT investor.
1. Does the company treat its employees right?
Every year, the Human Rights Campaign publishes an annual Corporate Equality Index.
The index rates workplaces on LGBTQ Equality on a scale from 0 to 100 along 4 criteria:
- Workforce protections: does the company have policies that include protection for sexual orientation and gender identity?
- Inclusive benefits: does the company have equivalent same and different-sex spousal benefits?
- Corporate responsibility: does the company demonstrate the right training and guidelines?
- Responsible citizenship: does the company avoid supporting anti-LGBT causes?
Look for scores higher than 90
Nowadays, most Fortune-500 companies have adequate structures in place to ensure equality among employees and earning scores of 90 or above from the HRC. Yet some major names fall through the cracks. Companies such as Rite Aid (50), Costco (60) and Exxon (85) all fail to provide equivalent same and different-sex benefits to their workers. These are companies that LGBT investors should view with suspicion.
2. Is the company a leader in LGBT rights?
It’s easier to follow than to lead.
It’s become incredibly popular over the past five years for corporations to hop on the LGBT bandwagon. Burger King, for instance, created a “Pride Whopper” for 2014 San Francisco pride. The only difference was a rainbow flag wrapper, signifying that “we’re all the same inside”. Yet, was this simply a marketing gimmick or an advertising stunt?
To answer this question, we need to dig deeper into a company’s history.
Did the company support LGBT rights early on?
IBM started extending benefits to gay partners since 1996. Ben & Jerry’s (now owned by Unilever) started even earlier in 1989.
While it’s fine for an LGBT investor to buy companies that aren’t so active in promoting LGBT rights, the best investments often are those that are willing to push boundaries. That’s because these companies that want to make a difference in social views often also want to make a difference in their business worlds too.
Does the company support current LGBT initiatives?
These days, same-sex protections are mandated by federal law for married couples. However, a number of issues still remain.
- LGBT non-discrimination policies. 28 states still don’t have LGBTQ non-discrimination protections.
- Equivalent paternal leave. Do paternal leave policies for gay couples mirror those of maternal leave?
- Transgender rights. Do companies protect the rights of transgender employees and customers?
- Gender reassignment medical costs. Does the company help cover reassignment surgeries that private insurance does not?
3. Positive investment outlook
Is the company a good long-term investment?
Regardless of a company’s LGBT policies, good long-term investments should also have what Warren Buffett calls “wide moats.” In other words, the company should have a sustainable competitive advantage that allows them to achieve higher than average returns for the next 10 to 20 years. That’s because high-returning companies can both grow faster and return more money to shareholders.
Fortunately, most wide-moat companies are often also strong champions of LGBT rights. Why? Because companies have to be forward-looking to build a wide moat. And that usually means hiring the right people (whether straight or gay) and protecting their rights. Close-minded or traditionally-run firms tend to die off over time, while forward-looking companies like Apple and Google thrive.
4. Is the company selling for a good value?
As a final check, an LGBT investor should also be aware of the company’s share value. You don’t want to overpay for an investment.
Valuation is hardly specific to a company’s sexual-orientation policies. Fortunately, most LGBT-friendly investments also have high- returns on capital thanks to their wide moats. And what’s the great thing about high returns on capital?
Companies with high-returns on capital tend to be good values.
I write more about this in a separate article. But high ROIC companies tend to be valued at a discount to their intrinsic value. That’s because investors often fail to account for the compounding of reinvested returns over time.
That’s why shares of high earning companies, such as Google, increase so much over time. $1,000 invested in Google during its 2004 IPO would have turned into $21,500 today. The same investment in the S&P 500 would have turned into just $2,700. And what about the lower-returning oil and gas companies? An investment in the SPDR Energy Sector ETF turned $1,000 just $2,060 today.
This pattern repeats itself through history: that’s one key reason why Warren Buffett adjusted his investment strategy away from “cigarette butt” investments into higher-quality ones. It’s also a strategy that I use in investing Jurnex’s flagship fund.
Best LGBT-Friendly Investment Examples
Now that we have covered the four criteria of good LGBT investing, let’s take a look at five top investments.
1. Target (TGT)
Over the past several years, Target became an unwitting champion of LGBT rights by simply doing the right thing.
n 2017, CEO Brian Cornell announced a transgender bathroom policy that allowed transgender people to choose the bathroom they felt comfortable using. Many other retailers had quietly instituted similar transgender policies, but Target’s very public announcement shook the retail world to its core. The statement was certainly controversial: Brian Cornell later told the Wall Street Journal that “Target didn’t adequately assess the risk, and the ensuing backlash [AFA boycott] was self-inflicted”.
Yet the company refused to back down, even as anti-transgender groups threatened boycotts of Target stores. Company sales have since recovered, and Target now stands out as a forward-looking retailer that covers the four key points
Why Target is a great stock for an LGBT investor
- High HRC score. Target earns a full 100 from the HRC corporate quality index.
- Leader in LGBT rights. While Target is far from the only retailer to allow transgender bathroom use, it was certainly the most vocal in its unwavering support. Today, Target continues to support LGBT rights on a corporate scale.
- Positive investment outlook. Target has refused to stand still, unlike older retailers such as Sears, Macy’s and JCPenney. Target’s push into smaller city-sized stores and house-branded items has helped them increase sales by 3.4% in 2018 and 4.8% in 2019.
- Good value. Despite its positive outlook, Target shares currently sell for just 14.5 times forward earnings compared to the sector median of 16.9 times. The company also has a healthy 3% dividend yield.
2. Google (GOOGL)
Google was one of the earlier companies to vocalize public support for LGBT equality. In 2006, they were one of the earlier corporate sponsor and float participants at several pride parades, earning the endearing term “Gayglers” from the New York Times.
The company’s co-founder, Sergey Brin, has also been a vocal support of LGBT rights. In 2008 he came out in opposition to California’s Prop 8 ban on same-sex marriage. In 2010, the company also began providing additional compensation to gay and lesbian employees to cover the costs of domestic partner health benefits that heterosexual married couples did not have to pay.
Why Google is a great stock for an LGBT investor
- High HRC score. Google earns a full score of 100 from the HRC
- Leader in LGBT rights. The company was an early champion of LGBT rights in California and New York. Although they can still do more for transgender rights, we find their history on gay and lesbian rights to be fully adequate.
- Positive investment outlook. It’s hard to imagine the Internet without Google. The company dominates the search market and continues to innovate and grow. They now command 76% market share of mobile operating systems, have 1.5 billion Gmail users and ranks #3 in cloud service providers. Several of their moon-shot projects, including self-driving cars, also have best-in-class technology.
- Good value. Google is one of Jurnex’s key holdings as of 2019. The company demonstrates an incredible rate of return of 16.6% ROE (despite heavily funding moonshot projects), and we feel they have a lot of undervalued assets.
3. Starbucks (SBUX)
Starbucks is another company that championed LGBT rights from an early stage. CEO Howard Schultz purchased the chain in 1987 and grew the company to more than 28,000 stores globally. Under his leadership, the company publicly supported Washington State’s referendum backing gay marriage. Schultz stood his ground when the National Organization for Marriage launched a boycott of the coffee chain.
The move drew ire from certain shareholders. In a heated call, Schultz responded to an angry shareholder “the lens in which we are making that decision [to back gay marriage] is through the lens of our people… You can sell your shares in Starbucks and buy shares in another company. Thank you very much.”
Though Howard Schultz retired earlier last year, Starbucks continues its social mission today.
Why Starbucks is a great stock for an LGBT investor
- High HRC score. The company scores 100 in the HRC index
- Leader in LGBT rights. Starbucks was one of the first major corporations to march in the Seattle Pride Parade. They were also an early community leader, helping create social gatherings, nicknamed “Beers and Queers,” for LGBT groups at other companies like Boeing, Amazon, and Microsoft.
- Positive investment outlook. The company continues to adapt to evolving customer behaviors. Analysts expect 8% revenue growth, thanks to widening US store formats and increasing sales in China.
- Good value. (Edit: As of July 2019 company shares have gone from $50 to $90, reducing potential gains.) Starbucks earns 24.5% returns on invested capital, more than double its peer group.
4. JP Morgan Chase (JPM)
When one thinks of JP Morgan Chase, LGBT support doesn’t easily come to mind. Yet the company has been a quiet champion of LGBT rights within the old-fashioned world of finance.
The company has ranked among Fortune’s 50 Best Companies For Minorities since 1989. In 2002, the Economist wrote that JP Morgan had the “oldest gay and lesbian network” with, at that time, 400 members.
The company was also the only finance company to earn a full 100 score on HRC’s first Corporate Equality Index in 2002. Though the world of finance still has a long way to go in LGBT rights, JP Morgan has done its part on Wall Street and remains one of its more progressive firms.
Why JP Morgan is a great stock for an LGBT investor
- High HRC score. JP Morgan scores a 100 on HRC’s Corporate Equality Index
- Leader in LGBT rights. The company has taken a progressive stance on LGBT inclusion, earning a score of 100 within the first year that the HRC survey was conducted.
- Positive investment outlook. The company’s focus on hiring top talent has paid off. The company earns an enviable 13.5% return on equity, compared to its peer average of 10.1%.
- Good value. Despite its above-average ROE, the company trades at just 1.5 times book value and 11 times earnings (as of mid-2019). This is the type of company that Warren Buffet might point to as an investment you can hold “forever”.
5. General Mills (GIS)
An example of how an old firm in an old business can change.
General Mills, based in Minneapolis, Minnesota, might not be a company you would expect to champion LGBT rights. Yet the company was a key sponsor to the 23rd National Conference on LGBT Equality. And in 2013, General Mills became one of the major companies to stand up against Minnesota’s proposed ban on gay marriage.
Taking action, despite backlash
At the time, these actions weren’t popular. Chuck Darrell, Communications Director for Minnesota for Marriage, told CBS Local, that he believed the stance would hurt the company overall, saying “it’s regrettable that a corporation that makes billions selling cereal to children should take a position that marriage should be redefined.”
Yet, General Mills didn’t back down from its stance, earning the company our commendations for actively supporting the LGBT community.
Why General Mills is a great stock for an LGBT investor
- High HRC score. The company has scored a full 100 on the HRC index since 2005
- Leader in LGBT rights. Despite having a diversified customer base, the company has been willing to take unpopular stances to support LGBT rights.
- Positive investment outlook. The company has outperformed its peers in maintaining market-leading positions, pricing power and online presence. That’s because while competitors like Kraft-Heinz cut back on marketing, General Mills has continued to invest in its brands. The company’s acquisition of the Blue Buffalo pet food business should also add to growth.
- Good value. The company trades at roughly equal to its sector (GIS @16.3 times forward earnings vs sector @16.9x forward earnings) despite earning almost DOUBLE the sector’s ROE (26.6 vs 12.1). The company has maintained highly consistent operating income for the past-5 years, and so will likely continue to slowly grow its share price over time.
Investing in socially responsible companies pays off in the long-run. Companies that are courageous enough to stand for what’s right are also often the same ones that can navigate changing business environments. These are the same companies that have strong corporate governance and missions. These companies range from tech giants such as Google and Facebook to stalwarts such as Target and Charles Schwab.
I caution people from overcomplicating stock investing. As long as you follow these four principals for good LGBT investing, it’s hard to go wrong.
Where to find more resources
If you’re looking to revamp your stock portfolio, there’s no better time than now. All it takes is a phone call.
That’s because I’ve invested client money for over a decade in the same old-fashioned way: seek out great companies in good industries, that can be purchased at a discount to their fair value. Sounds too simple to be true? Give me a call today and I’ll show you that it’s still possible after all these years.
About Jurnex Financial Advisors
At Jurnex Financial Advisors, we have the securities backing of Charles Schwab. Yet we retain our operational independence from any third party. This means you can have the confidence your money is safe with one of America’s best brokerages and still receive knowledge and advice from an independent firm focused on YOU.
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