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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 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, 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 – the price-to-earnings (P/E) ratio. Though this investing style picks stocks with higher P/E ratios than 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).
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 indicate that the stocks are undervalued.)
Here are four stocks that made it through the screen:
East West Bancorp (EWBC - Free Report) serves as a financial bridge between the United States and Greater China by providing various personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
East West Bancorp has a trailing four-quarter earnings surprise of 8.39%, on average. The Zacks Consensus Estimate for EWBC’s 2022 has moved north by 6.6% to $6.49 per share over the past 60 days.
Automatic Data Processing (ADP - Free Report) is a provider of cloud-based Human Capital Management technology solutions, including payroll, talent management, Human Resources and benefits administration, and time and attendance management. The company carries a Zacks Rank #2.
Automatic Data Processing has a trailing four-quarter earnings surprise of 5.5%, on average. The Zacks Consensus Estimate for ADP’s fiscal 2022 has moved north by 0.7% to $6.82 per share over the past 60 days.
CDW Corporation (CDW - Free Report) is a leading provider of integrated information technology (IT) solutions to small, medium and large business, government, education and healthcare customers. The company carries a Zacks Rank #2 currently.
CDW has a trailing four-quarter earnings surprise of 9.8%, on average. The Zacks Consensus Estimate for 2022 has moved north by 6.2% to $9.27 per share over the past 60 days.
Qualcomm (QCOM - Free Report) designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access technology. The company carries a Zacks Rank #2 currently.
Qualcomm has a trailing four-quarter earnings surprise of 12.22%, on average. The Zacks Consensus Estimate for Qualcomm’s fiscal 2022 has moved north by 11.9% to $11.76 per share over the past 60 days.
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.
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4 GARP Stocks for a Winning Portfolio
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 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, 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 – the price-to-earnings (P/E) ratio. Though this investing style picks stocks with higher P/E ratios than 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).
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 indicate that the stocks are undervalued.)
Here are four stocks that made it through the screen:
East West Bancorp (EWBC - Free Report) serves as a financial bridge between the United States and Greater China by providing various personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
East West Bancorp has a trailing four-quarter earnings surprise of 8.39%, on average. The Zacks Consensus Estimate for EWBC’s 2022 has moved north by 6.6% to $6.49 per share over the past 60 days.
Automatic Data Processing (ADP - Free Report) is a provider of cloud-based Human Capital Management technology solutions, including payroll, talent management, Human Resources and benefits administration, and time and attendance management. The company carries a Zacks Rank #2.
Automatic Data Processing has a trailing four-quarter earnings surprise of 5.5%, on average. The Zacks Consensus Estimate for ADP’s fiscal 2022 has moved north by 0.7% to $6.82 per share over the past 60 days.
CDW Corporation (CDW - Free Report) is a leading provider of integrated information technology (IT) solutions to small, medium and large business, government, education and healthcare customers. The company carries a Zacks Rank #2 currently.
CDW has a trailing four-quarter earnings surprise of 9.8%, on average. The Zacks Consensus Estimate for 2022 has moved north by 6.2% to $9.27 per share over the past 60 days.
Qualcomm (QCOM - Free Report) designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access technology. The company carries a Zacks Rank #2 currently.
Qualcomm has a trailing four-quarter earnings surprise of 12.22%, on average. The Zacks Consensus Estimate for Qualcomm’s fiscal 2022 has moved north by 11.9% to $11.76 per share over the past 60 days.
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.