Growth at a reasonable price or GARP is an excellent strategy to earn quick profits from investments. The GARP approach leads to the identification of stocks that are priced below the market or any reasonable target determined by fundamental analysis.
The strategy helps investors gain exposure to stocks that have impressive prospects and are trading at a discount. GARP stocks have solid prospects in terms of cash flow, revenues, earnings per share (EPS) and others. Therefore, a portfolio created on the basis of the GARP strategy contains stocks that offer the best value and growth investing. Carlisle Companies ( CSL Quick Quote CSL - Free Report) , East West Bancorp ( EWBC Quick Quote EWBC - Free Report) , W.W. Grainger ( GWW Quick Quote GWW - Free Report) and Automatic Data Processing ( ADP Quick Quote ADP - Free Report) are some GARP stocks that hold promise. 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. The stocks have solid prospects in terms of cash flow, revenues, EPS and others.
Growth Metrics A 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 a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under the GARP strategy. Another growth metric considered by both growth and GARP investors is return on equity (ROE). GARP investors look for strong and higher ROE than the industry average to identify superior stocks. Moreover, stocks with a positive cash flow find precedence under the GARP plan. Value Metrics GARP investing prioritizes one of the popular value metrics — the price-to-earnings (P/E) ratio. Though the investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios. 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
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 the M-industry average Here are four stocks that made it through the screen: Carlisle is engaged in designing, manufacturing, and selling a wide range of roofing and waterproofing products, engineered products, and finishing equipment. CSL currently flaunts a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here. Carlisle has a trailing four-quarter earnings surprise of 27.99%, on average. The Zacks Consensus Estimate for CSL's 2022 earnings has moved 14.7% north to $20.24 per share over the past 60 days. East West Bancorp acts as a financial liaison 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 others. The company currently sports a Zacks Rank #1. East West Bancorp has a trailing four-quarter earnings surprise of 4.74%, on average. The Zacks Consensus Estimate for EWBC's 2022 earnings has moved 7.9% north to $7.79 per share over the past 60 days. W.W. Grainger is a broad line, business-to-business distributor of maintenance, repair and operating products and services, which operates primarily in North America, Japan and the U.K. The company currently carries a Zacks Rank #2. W.W. Grainger has a trailing four-quarter earnings surprise of 7.95%, on average. The Zacks Consensus Estimate for W.W. Grainger’s 2022 earnings has moved 6.6% north to $28.07 per share over the past 60 days. Automatic Data Processing provides cloud-based Human Capital Management technology solutions, including payroll, talent management, human resources and benefits administration, and time and attendance management. The company currently carries a Zacks Rank #2. Automatic Data Processing has a trailing four-quarter earnings surprise of 5.02%, on average. The Zacks Consensus Estimate for fiscal 2023 earnings has moved 3.6% north to $8.05 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.