- Oops!Something went wrong.Please try again later.
- Oops!Something went wrong.Please try again later.
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.
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.
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.
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 six stocks that made it through the screen:
Gartner, Inc. IT is a leading information technology research and advisory firm, which offers rich domain expertise and technology-related insights necessary for informed decision-making process. The company sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 72.89%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
East West Bancorp, Inc. EWBC serves as a financial bridge between the United States and Greater China by providing various personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals. The company carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 15.41%, 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 13.71%, on average.
KLA Corporation KLAC is an original equipment manufacturer of process diagnostics and control equipment, and yield management solutions required for the fabrication of semiconductor integrated circuits or chips. The company carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 7.94%, on average.
Get the remaining stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
KLA Corporation (KLAC) : Free Stock Analysis Report
Gartner, Inc. (IT) : Free Stock Analysis Report
East West Bancorp, Inc. (EWBC) : Free Stock Analysis Report
Landstar System, Inc. (LSTR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research