If you are looking for a profitable portfolio of stocks offering the best of value and growth investing, try the growth at a reasonable price or GARP strategy.
The strategy helps investors gain exposure to undervalued stocks with impressive 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) , Hubbell ( HUBB Quick Quote HUBB - Free Report) , Allegion ( ALLE Quick Quote ALLE - Free Report) and Grand Canyon Education ( LOPE Quick Quote LOPE - 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 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 5% and 20% are considered ideal under the GARP strategy. Another growth metric that both growth and GARP investors consider is the return on equity (ROE). GARP investors look for a 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 prioritizes the popular value metrics — the price-to-earnings (P/E) and price-to-book (P/B) ratios. Though this investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios. Using the GARP principle, we ran 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 5% 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 of the nine stocks that made it through the screening process: 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 9.15%, on average. The Zacks Consensus Estimate for W.W. Grainger’s 2023 earnings has moved 6.7% north to $35.53 per share over the past 30 days. Hubbell designs and manufactures electrical and electronic products such as plugs, receptacles, connectors, data signal processing components, lighting fixtures, and high-voltage test and measurement equipment. The company currently flaunts a Zacks Rank #1. Hubbell has a trailing four-quarter earnings surprise of 21.01% on average. The Zacks Consensus Estimate for HUBB’s 2023 earnings has moved 22.5% north to $13.81 per share over the past 30 days. Allegion is a leading global provider of security products and solutions for business and domestic purposes. Its extensive portfolio of mechanical and electronic security products includes doors and door systems, electronic security products, biometric and mobile access control systems, locks, locksets, exit devices, portable locks, and workforce productivity systems. The company currently carries a Zacks Rank #2. Allegion has a trailing four-quarter earnings surprise of 12.49%, on average. The Zacks Consensus Estimate for ALLE’s 2023 earnings has moved 4.1% north to $6.62 per share over the past 30 days. Grand Canyon Education is an accredited provider of online post-secondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, business and healthcare. The company currently carries a Zacks Rank #2. Grand Canyon Education has a trailing four-quarter earnings surprise of 6.34%, on average. The Zacks Consensus Estimate for LOPE's 2023 earnings has moved 0.6% north to $6.43 per share over the past 30 days. Get the remaining stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software. 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.