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Add These 4 GARP Stocks to Your Portfolio for Maximum Returns

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·4 min read
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If you’re looking for a profitable portfolio of stocks that will offer the best of value and growth investing, try the growth at a reasonable price or GARP strategy.

It helps an investor gain exposure to stocks that are undervalued and have impressive growth prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of both value and growth investing.

GARP Metrics – Mix of Growth & Value Metrics

The GARP strategy seeks to offer an ideal investment by utilizing the best features of both value and growth investing. Investors adopting the GARP approach prefer to buy stocks that are priced below the market or any reasonable target determined by fundamental analysis. These stocks also have solid prospects in terms of cash flow, revenues, earnings per share (EPS) and so on.

Growth Metrics

Both strong earnings growth history and impressive earnings prospects are the main concepts that GARP investors borrow from the growth investing strategy. However, instead of super-normal growth rates, pursuing stocks with a more stable and reasonable growth rate is also a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under the GARP strategy.

Another growth metric that is considered by both growth and GARP investors is return on equity (ROE). GARP investors look for strong and higher ROE compared to the industry average to identify superior stocks. Moreover, stocks with positive cash flow find precedence under the GARP plan.

Value Metrics

GARP investing gives priority to one of the popular value metrics — price-to-earnings (P/E) ratio. Though this investing style picks stocks with higher P/E ratios compared to value investors, it avoids companies with extremely high P/E ratios. Moreover, the price-to-book value (P/B) ratio is also considered.

Using the GARP principle, we have run a screen to identify stocks that should offer solid returns in the near term.

Screening Parameters

Along with the criteria discussed in the above section, we have considered a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy).

Last 5-year EPS & projected 3–5 year EPS growth rates between 10% and 20% (Strong EPS growth history and prospects ensure improving business.)

ROE (over the past 12 months) greater than the industry average (Higher ROE compared to the industry average indicates superior stocks.)

P/E and P/B ratios less than M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)

Here are four of the five stocks that made it through the screen:

The Home Depot, Inc. HD is a leading home improvement specialty retailer, which offers a wide range of home improvement items, building materials, lawn and garden products, décor products and related services. The company sportsa Zacks Rank #1. It has a trailing four-quarter earnings surprise of 9.91%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tivity Health, Inc. TVTY provides health management services that includechiropractic services, physical therapy, acupuncture, occupational therapy and alternative medicine, with special focus on seniors and older adults. The company carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 100.38%, on average.

Landstar System, Inc. LSTR is an asset-light provider of integrated transportation management solutions. The company carries a Zacks Rank #2, currently. It has a trailing four-quarter earnings surprise of 22.1%, on average.

Union Pacific Corporation UNP is a provider of rail transportation services, which connects the Pacific and Gulf Coast ports with the Midwest and gateways in eastern United States.The company has a Zacks Rank #2 and a trailing four-quarter earnings surprise of 1.18%, on average.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.


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Union Pacific Corporation (UNP) : Free Stock Analysis Report
 
The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
Landstar System, Inc. (LSTR) : Free Stock Analysis Report
 
Tivity Health, Inc. (TVTY) : Free Stock Analysis Report
 
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