(MONEY Magazine) – Contrary to many investors' belief, there's nothing inherently unprofitable about investing in solid corporate citizens. A new study by J. David Diltz, associate professor of finance at the University of Texas at Arlington, concludes that a portfolio of companies that don't pollute or persecute spotted owls figures to do just as well as any other. The study compared 28 portfolios made up of companies labeled good, fair or poor by the Council on Economic Priorities (CEP), a group that rates firms on such issues as environmental policy, military contracting and diversity. From 1989 through 1991, the "good" portfolios performed just as well as the "fair" and "poor." Why? Diltz explains that the selection of white-hat stocks has become so diverse that investors can easily assemble a high-ethics portfolio without screening out high gainers.

Diltz's conclusions are supported by the returns of the Domini 400 Social Index, a 400-stock index of socially screened companies. Since its inception in 1990, Domini has outperformed the S&P 500 on average by almost 5%. And while many socially conscious mutual funds have been disappointing, there are notable exceptions, including Parnassus (3.5% load; up 16.1% annually over the past three years; 800-999-3505) and Pioneer Fund (5.75% load; up 9.3%; 800-225-6292).

If you want to own such stocks directly, good-guy investing pros we interviewed recommended the four stocks below. They meet CEP criteria for ethical corporate behavior and are ranked as timely buys by Value Line or S&P. --Holly Ketron