5 Growth Stocks Trading at a Bargain

Not too long ago it was virtually impossible to find a stock with positive growth rates as we hit the depths of the recession. Shortly after that, spotting growth was child's play because companies were coming off of the lowest points in the business cycle. Allowing just about any stock to show positive growth thanks to the horrible year over year comparisons.

However, as the Dow is trading north of 12,000 for the first time in years we have to start figuring out which of all of these companies with solid growth rates is fairly priced. The last thing you want to do is overpay for a stock, especially when the market is at a high point.

Growth at a Reasonable Price (GAPR)

Investing in growth stocks is a tried and true investment style, but combining that with certain value principles can take it to the next level. Essentially, the GARP philosophy is the practice of finding stocks with above average growth rates and below average valuations.

Stocks with high growth rates can justify a higher than normal P/E ratio, but by dividing the P/E by the expected growth rate (PEG ratio), we want to make sure that it is within reason. While there are no strict criteria to abide by, the rule of thumb is to find a PEG ratio of 1.0 or less.

Stocks that Make the Grade

Here are a few examples of stocks that have above average growth rates, trade at a discount and have a Zacks #2 Rank (Buy) or better.

Monro Muffler Brake (MNRO - Snapshot Report) operates a chain of automotive repair and tire services in the U.S. under several different brands across its 783 stores.

MNRO is currently a Zacks #2 Rank (Buy) that trades with a forward P/E around 22 times. That figure wouldn't make it past just about anyone screening for a good price to earnings multiple.

However, its expected earnings growth for the next 3-5 years is just over 25%, bringing the PEG ratio to roughly 0.9. A prime example of a growth stock that justifies a higher P/E, but is still considered a value.

Carbo Ceramics (CRR - Snapshot Report) supplies ceramic proppant, which is used in the fracturing process for oil and gas wells. They also offer other related services.

The company's expected long-term growth rate of 35% would be fantastic, and with a PEG ratio of 0.8 times it is coming at a very attractive price here. Estimates have been consistently rising over the past 3 months, which helps propel it to a Zacks #1 Rank (Strong Buy).

Vitamin Shoppe (VSI - Snapshot Report) is a retailer and direct marketer of vitamins, supplements and other specialty health products.

This Zacks #2 Rank (Buy) is expected to grow its earnings by 25% over the foreseeable future. That should help swallow the pill of buying a stock with a P/E ratio just above 23 times.

Radware (RDWR - Snapshot Report) offers application delivery and network solutions to banks, insurance companies, government agencies and other customers.

Specialized tech companies are usually the bane of a value investor's existence. So there it would be tough to sell them a stock trading with a forward P/E north of 34 times. But let someone know that it comes along with an expected growth rate of 35%, a PEG of 1.0, and it starts to look like a reasonable price for a Zacks #2 Rank.

Brigham Exploration (BEXP) is an independent exploration, development and production company that seeks onshore domestic oil and natural gas reserves.

After reporting record production volumes, revenue and operating income, estimates started moving higher. Now the company is expected to grow about 40% a year for the next few years. That is enough to justify a forward P/E of 32 times, because the PEG ratio is at 0.8.

Best of Both Worlds

There are plenty of people from both the value and growth camp that will vehemently argue their points on which is better. I say; why not capitalize on the best of both worlds?

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service

Read the full analyst report on RDWR

Read the full analyst report on CRR

Read the full analyst report on BEXP

Read the full analyst report on MNRO

Read the full analyst report on VSI