Scoop Up These 4 GARP Stocks to Receive Handsome Returns
If you are looking for a profitable portfolio of stocks offering the best of value and growth investing, try the growth at a reasonable price or GARP strategy.
The strategy helps investors gain exposure to undervalued stocks with impressive prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of value and growth investing. Hubbel HUBB, Caterpillar CAT, A.O. Smith AOS and Arcos Dorados ARCO are some GARP stocks that hold promise.
GARP Metrics — Mix of Growth & Value Metrics
The GARP strategy seeks to offer an ideal investment by utilizing the best features of value and growth investing. Investors adopting the GARP approach prefer buying stocks 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
A 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 a tactic of GARP investors. Hence, growth rates between 5% and 20% are considered ideal under the GARP strategy.
Another metric that growth and GARP investors consider is return on equity (ROE). GARP investors look for a strong and higher ROE than the industry average to identify superior stocks. Moreover, stocks with positive cash flows find precedence under the GARP plan.
Value Metrics
GARP investing prioritizes the popular value metrics — the price-to-earnings (P/E) and price-to-book (P/B) ratios. Though this investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios.
Using the GARP principle, we ran 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 Zacks Rank #1 (Strong Buy) or 2 (Buy).
Last 5-year EPS & projected 3-5-year EPS growth rates between 5% and 20% (Strong EPS growth history and prospects ensure improving business.)
ROE (over the past 12 months) greater than the industry average (Higher ROE than the industry average indicates superior stocks.)
P/E and P/B ratios less than the M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)
Here are four stocks that made it through the screen:
Hubbell designs and manufactures electrical and electronic products such as plugs, receptacles, connectors, data signal processing components, lighting fixtures, and high-voltage test and measurement equipment. The company currently flaunts a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.
Hubbell has a trailing four-quarter earnings surprise of 19.9% on average. The Zacks Consensus Estimate for HUBB’s 2023 earnings has moved 10.7% north to $15.32 per share over the past 30 days.
Caterpillar is a global construction and mining equipment manufacturer. It serves infrastructure, construction, mining, oil & gas and transportation sectors. It has more than 4 million products with an extensive dealer network of 165 dealers, spanning 191 countries. The company currently sports a Zacks Rank #1.
Caterpillar has a trailing four-quarter earnings surprise of 18.5% on average. The Zacks Consensus Estimate for CAT’s 2023 earnings has moved 8.4% north to $19.45 per share over the past 30 days.
A.O. Smith is one of the leading manufacturers of commercial and residential water heating equipment and water treatment products worldwide. The company carries a Zacks Rank #2.
A.O. Smith has a trailing four-quarter earnings surprise of 10.5% on average. The Zacks Consensus Estimate for AOS 2023 earnings has moved 2% north to $3.57 per share over the past 30 days.
Arcos Dorados is the world’s largest independent McDonald’s franchisee. Its operations span Brazil, North Latin America, South Latin America and the Caribbean. It also runs quick-service restaurants in Latin America and the Caribbean. The company currently carries a Zacks Rank #2.
Arcos Dorados has a trailing four-quarter earnings surprise of 34.9% on average. The Zacks Consensus Estimate for ARCO’s 2023 earnings has moved 8.3% north to 78 cents per share over the past 30 days.
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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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Caterpillar Inc. (CAT) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Hubbell Inc (HUBB) : Free Stock Analysis Report
