If you are looking for a profitable portfolio of stocks that will offer the best value and growth investing, try the growth at a reasonable price or GARP strategy.
The strategy helps investors 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 include stocks that offer the best of both value and growth investing. W.W. Grainger ( GWW Quick Quote GWW - Free Report) , Carlisle Companies ( CSL Quick Quote CSL - Free Report) , CDW Corporation ( CDW Quick Quote CDW - 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 prefer buying stocks 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 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 the return on equity (ROE). GARP investors look for strong and higher ROE than the industry average to identify superior stocks. Moreover, stocks with positive cash flows find precedence under the GARP plan. Value Metrics GARP investing gives priority to the popular value metrics — the price-to-earnings (P/E) ratio and the price-to-book (P/B) 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. 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 than 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: W.W. Grainger is a broad line, business-to-business distributor of maintenance, repair, and operating products and services, primarily in North America, Japan and the U.K. The company currently sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here. 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. Carlisle is engaged in designing, manufacturing and selling a wide range of roofing and waterproofing products, engineered products, and finishing equipment. CSL currently carries a Zacks Rank #2. Carlisle has a trailing four-quarter earnings surprise of 27.99%, on average. The Zacks Consensus Estimate for CSL's 2022 earnings has moved 14.6% north to $20.24 per share over the past 60 days. CDW is a leading provider of integrated information technology (IT) solutions to small, medium and large businesses; government; education; and healthcare customers. The company currently carries a Zacks Rank #2. CDW has a trailing four-quarter earnings surprise of 6.78%, on average. The Zacks Consensus Estimate for 2022 earnings has moved 0.8% north to $9.66 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 3.5% 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.