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Growth at a reasonable price or GARP strategy is ideal for investors looking to enrich their portfolio by investing in stocks that have the potential to provide both value and growth investing. This strategy is best suited for an environment where major benchmarks are witnessing a strong rebound in the latter half of a particular time frame after plunging in the first half.
Investors following a blend strategy seek to invest in both value and growth stocks while those adopting GARP try to find stocks that are undervalued as well as have impressive growth prospects. Thus it may prove to be fruitful to follow the GARP strategy in order to build a profitable portfolio.
GARP: Best of Value & Growth Investing
Though investors following GARP consider popular metrics of both value and growth investing, the ideal range of these metrics are different from what value and growth investing consider. GARP investing employs popular value metrics – price-to-earnings (P/E) and price-to-book value (P/B) ratio – to evaluate whether a stock is undervalued or not.
In case of P/E ratio, investors following the GARP strategy look for a higher value of the ratio compared to value investors. However, they avoid picking companies with extremely high price-to-earnings ratios. On the other hand, like value investors, GARP investors give precedence to low P/B ratios. A ratio less than the industry average is preferred by GARP investors for choosing undervalued stocks.
The other metrics that are borrowed by GARP investors from the growth investing strategy are strong earnings growth history and impressive earnings growth prospects in the coming years. Unlike growth investors, GARP investors look for stocks with a more stable and reasonable growth rate instead of choosing those with extremely high growth rates. Growth rates between 10% and 20% are considered ideal in GARP strategy.
Return on equity (ROE) is another growth metric used in GARP strategy. This strategy considers those stocks that have higher ROE compared to the industry average as strong ROE is an indicator of superior stocks.
In order make the most of the GARP strategy, we have only considered stocks with a favorable Zacks Rank.
Screening Parameters
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
• Last 5-year EPS & projected 3–5 year EPS growth rate 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 X-industry average (P/E and P/B ratios less than that of the industry average indicates that the stocks are undervalued.)
Using these criteria we’ve narrowed down the universe of over 7,700 stocks to only 5.
Here are the five stocks that passed our screening criteria:
Activision Blizzard, Inc. is a worldwide pure-play online and console game publisher with leading market position across all categories of the rapidly growing interactive entertainment software industry. In addition to a Zacks Rank #2 (Buy), Activision Blizzard has an average four-quarter positive earnings surprise of 33.5%.
Teleflex Incorporated (TFX - Free Report) is primarily engaged in manufacturing, developing and supplying medical devices for different procedures in the medical industry throughout the globe. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 7.1%.
j2 Global, Inc. provides cloud-based communications and storage messaging services. In addition to a Zacks Rank #2, j2 Global also has an average four-quarter positive earnings surprise of 5.9%.
Heartland Financial USA, Inc. (HTLF - Free Report) is a multi-bank holding company that provides full-service retail banking through bank subsidiaries. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 11%.
DuPont Fabros Technology, Inc. is a leading owner, developer, operator and manager of wholesale data centers and a real estate investment trust. In addition to a Zacks Rank #2, DuPont Fabros Technology also has an average four-quarter positive earnings surprise of 0.4%.
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.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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Bet on These 5 GARP Stocks to Derive High Yields
Growth at a reasonable price or GARP strategy is ideal for investors looking to enrich their portfolio by investing in stocks that have the potential to provide both value and growth investing. This strategy is best suited for an environment where major benchmarks are witnessing a strong rebound in the latter half of a particular time frame after plunging in the first half.
Investors following a blend strategy seek to invest in both value and growth stocks while those adopting GARP try to find stocks that are undervalued as well as have impressive growth prospects. Thus it may prove to be fruitful to follow the GARP strategy in order to build a profitable portfolio.
GARP: Best of Value & Growth Investing
Though investors following GARP consider popular metrics of both value and growth investing, the ideal range of these metrics are different from what value and growth investing consider. GARP investing employs popular value metrics – price-to-earnings (P/E) and price-to-book value (P/B) ratio – to evaluate whether a stock is undervalued or not.
In case of P/E ratio, investors following the GARP strategy look for a higher value of the ratio compared to value investors. However, they avoid picking companies with extremely high price-to-earnings ratios. On the other hand, like value investors, GARP investors give precedence to low P/B ratios. A ratio less than the industry average is preferred by GARP investors for choosing undervalued stocks.
The other metrics that are borrowed by GARP investors from the growth investing strategy are strong earnings growth history and impressive earnings growth prospects in the coming years. Unlike growth investors, GARP investors look for stocks with a more stable and reasonable growth rate instead of choosing those with extremely high growth rates. Growth rates between 10% and 20% are considered ideal in GARP strategy.
Return on equity (ROE) is another growth metric used in GARP strategy. This strategy considers those stocks that have higher ROE compared to the industry average as strong ROE is an indicator of superior stocks.
In order make the most of the GARP strategy, we have only considered stocks with a favorable Zacks Rank.
Screening Parameters
• Zacks Rank less than or equal to #2
(Only Strong Buy and Buy rated stocks can get through.)
• Last 5-year EPS & projected 3–5 year EPS growth rate 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 X-industry average
(P/E and P/B ratios less than that of the industry average indicates that the stocks are undervalued.)
Using these criteria we’ve narrowed down the universe of over 7,700 stocks to only 5.
Here are the five stocks that passed our screening criteria:
Activision Blizzard, Inc. is a worldwide pure-play online and console game publisher with leading market position across all categories of the rapidly growing interactive entertainment software industry. In addition to a Zacks Rank #2 (Buy), Activision Blizzard has an average four-quarter positive earnings surprise of 33.5%.
Teleflex Incorporated (TFX - Free Report) is primarily engaged in manufacturing, developing and supplying medical devices for different procedures in the medical industry throughout the globe. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 7.1%.
j2 Global, Inc. provides cloud-based communications and storage messaging services. In addition to a Zacks Rank #2, j2 Global also has an average four-quarter positive earnings surprise of 5.9%.
Heartland Financial USA, Inc. (HTLF - Free Report) is a multi-bank holding company that provides full-service retail banking through bank subsidiaries. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 11%.
DuPont Fabros Technology, Inc. is a leading owner, developer, operator and manager of wholesale data centers and a real estate investment trust. In addition to a Zacks Rank #2, DuPont Fabros Technology also has an average four-quarter positive earnings surprise of 0.4%.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »