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Zacks.com featured highlights include: Hibbett Sports, ArcelorMittal, Rocket Companies, Atlas Corp and Canadian Solar

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Zacks Equity Research
·5 min read
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For Immediate Release

Chicago, IL – March 23, 2021 – Stocks in this week’s article are Hibbett Sports, Inc. HIBB, ArcelorMittal MT, Rocket Companies, Inc. RKT, Atlas Corp. ATCO and Canadian Solar Inc. CSIQ.

5 Best PEG Stocks Based on GARP Investing Strategy

In the equity market, investments always need to be prudently hedged in order to overcome uncertainties and limit losses related to external shocks. A question that arises often is whether one should resort to a value strategy that seeks discounted stocks or opt for growth investing in times of extreme market instability.

The investing track of the Oracle of Omaha over the past few decades and his gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor might give us all the answers.

The GARP theory enables strategic mingling of growth and value-investing principles, which gives us a hybrid strategy by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid sustainable growth potential (Investopedia).

GARP investing gives priority to one of the popular value metrics — the price/earnings growth (PEG) ratio. Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.

The PEG ratio is defined as: (Price/ Earnings)/Earnings Growth Rate

It relates stocks’ P/E ratio with their future earnings growth rates.

While P/E alone gives an idea of stocks that are trading at a discount, PEG, while adding the growth element to it, helps identify stocks with solid future potential.

A lower PEG ratio, preferably less than 1, is always better for GARP investors.

Say for example, if a stock's P/E ratio is 10 and the expected long-term growth rate is 15%, the company's PEG will come down to 0.66, a ratio indicating both undervaluation and future growth potential.

Unfortunately, this ratio is often neglected due to investors' limitations to calculate the future earnings growth rate of a stock.

There are some drawbacks to using the PEG ratio though. It does not consider the very common situation of changing growth rates, such as the forecast of the first three years at very high growth rate, followed by a sustainable but lower growth rate over the long term.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1283587/5-best-peg-stocks-based-on-garp-investing-strategy

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.

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