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Growth at a reasonable price, or GARP, provides an excellent opportunity for investors who are interested in raking in healthy returns. 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 have 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 will 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 cash flow, revenue, earnings per share (EPS) and so on.
Growth Metrics
Both strong earnings growth history and impressive earnings growth prospects in the coming years are the main concepts that GARP investors borrow from the growth investing strategy. However, they choose stocks with a more stable and reasonable growth rate instead of those with extremely high growth rates. Growth rates between 10% and 20% are considered ideal in 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 get precedence in GARP investing.
Value Metrics
GARP investing gives precedence 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, they avoid companies with extremely high P/E ratios. Moreover, the price-to-book value (P/B) ratio is another value metric that is considered in GARP investing.
Using the GARP principle, we have run 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 favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) to make the strategy a foolproof one.
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 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 indicates that the stocks are undervalued.)
Just these few criteria have narrowed down the universe of over 7,700 stocks to only five.
Here are the five stocks that made it through the screen:
Pasadena, CA-based East West Bancorp Inc. (EWBC - Free Report) is the holding company for East West Bank, East West Capital Trust I, East West Capital Trust II and Risk Services Inc. This Zacks Rank #1 company has an average four-quarter positive earnings surprise of 7.63%. You can see the complete list of today’s Zacks #1 Rank stocks here.
East West Bancorp’s one-year return of 78.5% is higher than the Zacks Bank-West industry’s addition of 48.7%.
Toronto-based Colliers International Group Inc (CIGI - Free Report) is a provider of commercial real estate services. This Zacks Rank #1 stock has an average four-quarter positive earnings surprise of 0.92%.
Further, the stock outperformed the Zacks Real Estate Operations industry in the last one year. While Colliers added 39.4%, the industry gained 18.5% over the same period.
Indiana-based Steel Dynamics Inc. (STLD - Free Report) is engaged in the manufacture and sale of steel products; processes and sells recycled ferrous and nonferrous metals; and fabricates and sells steel joist and deck products in the U.S. and international markets. It has an average four-quarter positive earnings surprise of 2.98% and carries a Zacks Rank #2.
Notably, Steel Dynamics gained 87.2% in the last one year, while the Zacks Steel Producers industry gained 64.2%.
Georgia-based Primerica Inc. (PRI - Free Report) distributes financial products to middle income households in the U.S. and Canada. It has an average four-quarter positive earnings surprise of 5.61% and a Zacks Rank #2.
Primerica’s one-year gain of 93.7% is way higher than the Zacks Insurance Life industry’s rally of 29.7%.
Marysville, OH-based Scotts Miracle-Gro Co (SMG - Free Report) manufactures, markets, and sells consumer lawn and garden products worldwide. It has an expected earnings growth rate of 15.5% for the current fiscal and has a Zacks Rank #2.
Scott Miracle-Gro’s one-year gain of 31% compares favorably with the Zacks Fertilizers industry’s addition of 5.9%.
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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5 GARP Stocks for a Winning Portfolio
Growth at a reasonable price, or GARP, provides an excellent opportunity for investors who are interested in raking in healthy returns. 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 have 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 will 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 cash flow, revenue, earnings per share (EPS) and so on.
Growth Metrics
Both strong earnings growth history and impressive earnings growth prospects in the coming years are the main concepts that GARP investors borrow from the growth investing strategy. However, they choose stocks with a more stable and reasonable growth rate instead of those with extremely high growth rates. Growth rates between 10% and 20% are considered ideal in 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 get precedence in GARP investing.
Value Metrics
GARP investing gives precedence 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, they avoid companies with extremely high P/E ratios. Moreover, the price-to-book value (P/B) ratio is another value metric that is considered in GARP investing.
Using the GARP principle, we have run 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 favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) to make the strategy a foolproof one.
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 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 indicates that the stocks are undervalued.)
Just these few criteria have narrowed down the universe of over 7,700 stocks to only five.
Here are the five stocks that made it through the screen:
Pasadena, CA-based East West Bancorp Inc. (EWBC - Free Report) is the holding company for East West Bank, East West Capital Trust I, East West Capital Trust II and Risk Services Inc. This Zacks Rank #1 company has an average four-quarter positive earnings surprise of 7.63%. You can see the complete list of today’s Zacks #1 Rank stocks here.
East West Bancorp’s one-year return of 78.5% is higher than the Zacks Bank-West industry’s addition of 48.7%.
Toronto-based Colliers International Group Inc (CIGI - Free Report) is a provider of commercial real estate services. This Zacks Rank #1 stock has an average four-quarter positive earnings surprise of 0.92%.
Further, the stock outperformed the Zacks Real Estate Operations industry in the last one year. While Colliers added 39.4%, the industry gained 18.5% over the same period.
Indiana-based Steel Dynamics Inc. (STLD - Free Report) is engaged in the manufacture and sale of steel products; processes and sells recycled ferrous and nonferrous metals; and fabricates and sells steel joist and deck products in the U.S. and international markets. It has an average four-quarter positive earnings surprise of 2.98% and carries a Zacks Rank #2.
Notably, Steel Dynamics gained 87.2% in the last one year, while the Zacks Steel Producers industry gained 64.2%.
Georgia-based Primerica Inc. (PRI - Free Report) distributes financial products to middle income households in the U.S. and Canada. It has an average four-quarter positive earnings surprise of 5.61% and a Zacks Rank #2.
Primerica’s one-year gain of 93.7% is way higher than the Zacks Insurance Life industry’s rally of 29.7%.
Marysville, OH-based Scotts Miracle-Gro Co (SMG - Free Report) manufactures, markets, and sells consumer lawn and garden products worldwide. It has an expected earnings growth rate of 15.5% for the current fiscal and has a Zacks Rank #2.
Scott Miracle-Gro’s one-year gain of 31% compares favorably with the Zacks Fertilizers industry’s addition of 5.9%.
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 »