In the equity market, investments need to be prudently hedged to overcome uncertainties and limit losses related to external shocks. A question that arises often is whether one should resort to a value strategy that seeks discounted stocks or opt for growth investing in times of extreme market instability.

The investing track of the Oracle of Omaha over the past few decades and his gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor might give us all the answers.

Per the GARP theory, the strategic mingling of growth and value-investing principles gives us a hybrid strategy, offering an ideal investment by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid sustainable growth potential (Investopedia).

Several stocks, which have surged significantly in the recent past, show an overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here we will discuss the success of five such stocks. These include Signet Jewelers (SIG Quick QuoteSIG - Free Report) , Suzano S.A. (SUZ Quick QuoteSUZ - Free Report) , Tencent Music Entertainment Group (TME Quick QuoteTME - Free Report) , Banco do Brasil S.A. (BDORY Quick QuoteBDORY - Free Report) and Core & Main, Inc. (CNM Quick QuoteCNM - Free Report) .

A Few More Words on GARP

GARP investing gives priority to one of the popular value metrics — the price/earnings growth (PEG) ratio. Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.

The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate

It relates the stocks’ P/E ratio with the future earnings growth rates.

While P/E alone gives an idea of stocks that are trading at a discount, PEG, while adding the growth element to it, helps identify stocks with solid future potential.

A lower PEG ratio, preferably less than 1, is always better for GARP investors.

Say for example, if a stock's P/E ratio is 10 and the expected long-term growth rate is 15%, the company's PEG will come down to 0.66, a ratio indicating both undervaluation and future growth potential.

Unfortunately, this ratio is often neglected due to investors' limitations to calculate the future earnings growth rate of a stock.

There are some drawbacks to using the PEG ratio though. It does not consider the very common situation of changing growth rates, such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate over the long term.

Hence, PEG-based investing can be even more rewarding if some other relevant parameters are also taken into consideration.

Here are the screening criteria for a winning strategy:

PEG Ratio less than X Industry Median

P/E Ratio (using F1) less than X Industry Median (For more accurate valuation purpose)

Zacks Rank of 1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1 or #2 have a proven history of success.)

Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity.)

Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stock is easily tradable.

Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: Upward estimate revisions add to the optimism, suggesting further bullishness.

Value Score of less than or equal to B: Our research shows that stocks with a Value Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential. 

Here are the five stocks that qualified the screening:

Signet Jewelers: Headquartered in Hamilton, Bermuda, Signet Jewelers is a retailer of diamond jewelry, watches as well as other products. The company operates in the United States, Canada, the U.K., the Republic of Ireland, and the Channel Islands. The company is often considered the leading retailer of diamond jewelry.

Signet Jewelers can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term historical growth rate of 12%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Suzano: This is a forestry-based publicly-held company, controlled by Suzano Holding and belonging to Group Suzano. The company produces and sells eucalyptus pulp and paper products in Brazil and internationally. It operates through Pulp and Paper segments. The company offers coated and uncoated printing and writing papers, paperboards, tissue papers, market and fluff pulps, and lignin and its byproducts.

Suzano stock can also be an impressive value investment pick with its Zacks Rank #1 and Value Score of A. Apart from a discounted PEG and P/E, Suzano has a solid long-term expected growth rate of 8.1%.

Tencent Music: This is a leading online music and audio entertainment platform in China, operating the country's highly popular and innovative music apps: QQ Music, Kugou Music, Kuwo Music and WeSing.Tencent Music's platform comprises online music, online audio, online karaoke, music-centric live streaming and online concert services.

Tencent Music stock can be an impressive value investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, Tencent Music also has an impressive long-term expected growth rate of 25.6%.

Banco do Brasil: Banco do Brasil S.A., together with its subsidiaries, provides banking products and services for individuals, companies, and public sectors in Brazil and internationally. The company operates through Banking, Investments, Fund Management, Insurance (Insurance, Pension, and Capitalization), Payment Methods and Other segments.

Banco do Brasil has an impressive growth rate of 17.8% for the next five years. The stock currently has a Value Score of A and carries a Zacks Rank #2.

Core & Main: Based in St. Louis, Core & Main is a leading specialized distributor of water, wastewater, storm drainage and fire protection products, and related services, to municipalities, private water companies and professional contractors across municipal, non-residential and residential end-markets nationwide. With approximately 300 locations, the company provides its customers with local expertise, backed by a national supply chain.

Core & Main can also be an impressive value investment pick with its Zacks Rank #2 and a Value Score of A. Apart from a discounted PEG and P/E, the stock also has a solid long-term expected growth rate of 18.8%.

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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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