The Top 12 Halal Stocks for Socially Responsible Investing in USA 2023

HomeWARThe Top 12 Halal Stocks for Socially Responsible Investing in USA 2023

October 21, 2023

183

Halal investing has become increasingly popular, appealing to Muslim and non-Muslim investors alike. Sharia-compliant funds follow Islamic principles to avoid prohibited activities and screen for ethical companies.

In this article, we will explore what makes a stock halal, highlight the top 12 halal stocks for 2023, and explain how to invest in compliant securities on baraka.

Introduction

Halal stocks comply with Islamic law and its prohibitions on earning interest, products like alcohol or pork, gambling, adult entertainment, and other sinful activities. The screening process ensures companies derive minimal revenue from non-compliant business activities.

Sharia compliance appeals to the socially responsible values of Muslim and non-Muslim investors alike. This article will explore halal investing guidelines, top Sharia-compliant stocks, and how to invest ethically on baraka.

What is Halal Investing?

Halal investing refers to sharia-compliant assets and funds that adhere to Islamic principles. The main guidelines include:

Avoiding interest (riba) and excessive debt
Excluding prohibited activities and sinful sectors
Limiting exposure to compliant stocks that still earn small amounts of impermissible income
Ongoing monitoring by a Sharia board of Islamic scholars

For an investment to be halal, the underlying business activities must be ethical and align with Islamic values. Sharia-compliant funds screen out stocks connected to prohibited sectors like alcohol, tobacco, pork, gambling, adult entertainment, weapons, and interest-based banking.

The screening process ensures companies pass both business activity and financial ratio tests to be considered halal. Halal funds often exclude most financial stocks and highly leveraged companies to meet guidelines.

Sharia Compliance Guidelines

Halal stocks must pass two levels of screening — business activity and financial ratios.

Business Activity Screening

The first criteria screens out all companies engaged in prohibited activities like:

Alcohol
Tobacco
Gambling
Adult entertainment
Pork/non-halal food production
Weapons/firearms
Interest-based banking and insurance

Any stocks connected to these sectors are non-compliant. You can instantly rule them out for sharia funds.

Financial Ratio Screening

The second screening reviews financial ratios to limit exposure to stocks still earning small amounts of impermissible income.

Two key thresholds for sharia compliance are:

Interest income must be <5% of revenue
Interest-bearing debt ❤0% of market cap

Stocks exceeding these limits are excluded by halal funds. However, minor exposure is tolerated if certain guidelines are met.

For instance, if interest income is 5–10% of revenue, the investor should donate 5–10% of profits to charity. Also, they should publicly object to these minor non-compliant activities.

Top 12 Halal Stocks for 2023

Here are 12 popular halal stocks that pass both business activity and financial ratio screenings:

1. Nvidia (NVDA)

Nvidia is a leading designer of graphics processing units (GPUs) and artificial intelligence platforms. Their focus on innovation in secular growth markets makes NVDA one of the most widely held halal stocks.

Market Cap: $389B
52-Week Performance: -44%
Sharia Compliance Score: 5

2. Advanced Micro Devices (AMD)

AMD is a top semiconductor company offering processors and technologies for computing, graphics, and visualization. With no debt and strong growth, AMD is a top sharia-compliant chip stock.

Market Cap: $108B
52-Week Performance: -51%
Sharia Score: 5

3. Adobe (ADBE)

Adobe is a software leader providing creative, marketing, document, and cloud solutions. With minimal debt, Adobe’s secular growth drivers make it a popular halal stock pick.

Market Cap: $159B
52-Week Performance: -35%
Sharia Score: 3

4. Johnson & Johnson (JNJ)

JNJ is a diversified healthcare giant and dividend aristocrat. Its ethical practices and focus on consumer health products make it a defensive halal stock.

Market Cap: $459B
52-Week Performance: 3%
Sharia Score: 3

5. Nike (NKE)

Nike is the world’s largest athletic footwear and apparel brand. With no financial or business activity violations, Nike’s strong brand and growth make it sharia-compliant.

Market Cap: $194B
52-Week Performance: -17%
Sharia Score: 4

6. Zoom Video (ZM)

Zoom is a leading provider of video conferencing services vital for remote work and education. Its rapid growth and lack of debt make ZM a top tech halal stock pick.

Market Cap: $20B
52-Week Performance: -61%
Sharia Score: 4

7. Peloton (PTON)

Peloton provides connected fitness equipment and streaming classes. With no Sharia violations, PTON’s focus on in-home fitness aligns with family values.

Market Cap: $3B
52-Week Performance: -76%
Sharia Score: 4

8. Lululemon (LULU)

Lululemon is a rapidly growing athletic apparel and accessory retailer. Its brand focus on yoga, meditation, and wellness appeals to mindful investors.

Market Cap: $38B
52-Week Performance: -14%
Sharia Score: 5

9. Visa (V)

Visa operates the world’s largest electronic payment network. Although Visa earns some interest, it passes screening with only minor compliance issues.

Market Cap: $463B
52-Week Performance: -2%
Sharia Score: 4

10. Tractor Supply (TSCO)

Tractor Supply is the largest rural lifestyle retailer providing products for homeowners, livestock owners, ranchers, and tradespeople. Its focus on agriculture and community make it an ethical pick.

Market Cap: $24B
52-Week Performance: -4%
Sharia Score: 5

11. Abbott Laboratories (ABT)

Abbott manufactures medical devices, nutritional products, diagnostic tools, and branded generic pharmaceuticals. With stable growth and dividends, Abbott is a defensive halal stock.

Market Cap: $196B
52-Week Performance: -17%
Sharia Score: 4

12. TJX Companies (TJX)

TJX is a leading off-price apparel and home retailer with over 4,500 stores globally. With no interest income or debt concerns, TJX offers stable growth and dividends.

Market Cap: $94B
52-Week Performance: 10%
Sharia Score: 5

How to Buy Halal Stocks on baraka

Baraka makes halal investing easy by offering a Sharia-screening filter to align your portfolio with Islamic principles.

To buy halal stocks on baraka:

Open a brokerage account on the baraka app
Enable the Sharia filter under settings
Deposit funds into your account
Use the filter to buy stocks passing halal screening
Monitor your halal portfolio and rebalance periodically

The Islamic filter screens out non-compliant stocks and highlights those aligned with Islamic values. With low fees and fractional share investing, baraka makes ethical investing accessible to all.

Benefits and Risks of Halal Investing

Halal investing offers important benefits but also some risks to consider:

Benefits

Adheres to Islamic principles
Socially responsible approach
Values-based alignment
Ethical screens avoid sin sectors
Focuses on companies with low debt

Risks

Smaller universe of stocks
Potentially underweight technology and financials
Screening errors or differing interpretations
Potential lack of diversification
Limiting screens reduces options

The restricted stock universe creates the biggest potential drawbacks for halal portfolios. However, the aligned ethics and positive screens help mitigate these limitations over the long-term.

Halal Investing Outlook

The demand for halal investing will likely continue growing rapidly as socially responsible investing gains popularity globally.

Key projections for Islamic finance include:

Islamic assets projected to reach $4 trillion by 2030
Islamic economy expected to reach $5 trillion by 2030
Islamic fintech assets estimated to reach $150 billion by 2030

Driven by strong demographics and growing awareness, the future looks bright for halal stocks and funds. Responsible Muslim and non-Muslim investors can benefit from the aligned ethics and positive screening.

FAQs

Q: What stocks are considered halal?

A: Halal stocks avoid prohibited sectors like alcohol, tobacco, weapons, gambling, and interest-based banking. They also limit minor exposure to compliant stocks that earn small amounts of impermissible income. Leading halal stocks include innovators like Nvidia, Microsoft, and Apple.

Q: Do I need to be Muslim to invest in halal stocks?

A: No, halal investing appeals to socially responsible investors of all faiths. The ethical principles align with moral values beyond just Islamic beliefs. Non-Muslims may invest in halal stocks for the values-based screens.

Q: How do I know which stocks are sharia compliant?

A: Halal stocks must pass both business activity and financial ratio screenings. You can use screening tools or filters to identify stocks aligned with Islamic principles and moral values. Baraka offers a sharia filter to highlight compliant stocks.

Q: What are the main guidelines for halal investing?

A: The two main halal investing guidelines are:

Avoid prohibited sectors and activities like alcohol, pork, gambling, tobacco, weapons, etc.
Limit exposure to stocks that earn minor amounts of impermissible income to less than 5% of revenue.

Q: What are the risks associated with halal investing?

A: Potential risks include smaller universe of stocks, underweight exposure to certain sectors, lack of diversification, screening errors or misinterpretations. However, the aligned ethics help mitigate these risks over the long run.

Q: What is the future outlook for halal investing?

A: The Islamic finance market is projected to reach $4 trillion by 2030, driven by strong demographics and increasing demand. Halal fintech like baraka can also boost access and adoption.

The continued growth of ethical and Islamic finance bodes well for halal stocks and funds. Socially responsible investing is becoming more popular across all demographics.