Investors on the lookout for stocks with the potential for maximum growth and value investing may consider the growth at a reasonable price or GARP strategy.
This popular strategy helps investors gain exposure to stocks with impressive growth prospects that are trading at a discount. 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. 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 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 prospects are the main concepts that GARP investors borrow from the growth investing strategy. However, instead of super-normal growth rates, pursuing stocks with a more stable and reasonable growth rate is also a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under 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 find precedence under the GARP plan. Value Metrics GARP investing gives priority 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 also considered. 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 a favorable
Zacks Rank #1 (Strong Buy) or 2 (Buy). (Strong EPS growth history and prospects ensure improving business.) Last 5-year EPS & projected 3–5 year EPS growth rates between 10% and 20% (Higher ROE compared to the industry average indicates superior stocks.) ROE (over the past 12 months) greater than the industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.) P/E and P/B ratios less than M-industry average Here are four stocks that made it through the screen: Landstar System, Inc. ( LSTR Quick Quote LSTR - Free Report) is an asset-light provider of integrated transportation management solutions. The company carries a Zacks Rank #2, currently. It has a trailing four-quarter earnings surprise of 7.91%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here. ResMed Inc. ( RMD Quick Quote RMD - Free Report) is a designer, manufacturer and distributor of generators, masks and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders. The company carries a Zacks Rank #2. It beat estimates in each of the trailing four quarters, the average surprise being by 28.88%. Masco Corporation ( MAS Quick Quote MAS - Free Report) manufactures, sells and installs home improvement and building products including faucets, bathing and showering devices, bathtubs, spas, paints, primers, and waterproofing items. The company carries a Zacks Rank #2. It beat estimates in each of the trailing four quarters, the average surprise being by 19.91%. Artisan Partners Asset Management, Inc. ( APAM Quick Quote APAM - Free Report) is an independent investment management firm that provides a broad range of U.S., non-U.S. and global equity investment strategies. The company carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 6.84%, on average. 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.