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Bet on These 5 GARP Stocks for Solid Returns

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If you’re looking for a profitable portfolio of stocks that will offer the best of value and growth investing, try the growth at a reasonable price or GARP strategy. 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 terms of cash flow, revenues, 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, it avoids 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 seven.

Here are five of the seven 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%.

East West Bancorp’s one-year return of 63.8% is higher than the Zacks Bank-West industry’s addition of 45.2%.

Los Angeles CA-based CBRE Group Inc. operates as a commercial real estate services and investment company. It has an average four-quarter positive earnings surprise of 8.24% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Notably, CBRE gained 24.8% in the last one year, while the Zacks Real Estate Operations industry gained 11.2%.

Toronto-based Colliers International Group Inc (CIGI - Free Report) is a provider of commercial real estate services. This Zacks Rank #2 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 36.3%, the industry gained 11.2% over the same period.

Murray Hill, NJ-based C.R. Bard Inc. designs, manufactures, packages, distributes, and sells medical, surgical, diagnostic, and patient care devices. It has an average four-quarter positive earnings surprise of 4.23% and has a Zacks Rank #2.

Bard’s one-year gain of 27.8% compares favorably with the Zacks Medical Dental Supplies industry’s gain of 8%.

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 82.5% is way higher than the Zacks Insurance Life industry’s rally of 27.8%.

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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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