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Investors seeking stocks that have the potential to offer the best of growth as well as value investing may consider the investing strategy known as growth at a reasonable price or GARP. This strategy is particularly profitable in strongly rebounding markets after a massive slump.
However, one should not confuse GARP investing with the blend strategy. While blend strategy seeks to invest in both value and growth stocks, GARP investing requires both value and growth features in a single stock.
GARP – A Mix of Growth & Value Investing
Growth Metrics
A strong earnings growth history and impressive earnings growth prospects for the coming years put together is the main concept that GARP investors borrow from the growth investing strategy. However, they choose stocks with a more stable and reasonable growth rate instead of those with extremely high growth rates. In fact, growth rates between 10% and 20% are considered ideal in 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 flows also gain prominence in GARP investing.
Value Metrics
GARP investing gives precedence to one of the popular value metrics – price-to-earnings ratio. Though GARP investors chooses more stocks with higher price-to-earnings ratios than value investors do, they avoid picking companies with extremely high price-to-earnings ratios. Moreover, lower price-to-book value (P/B) ratio compare to industry average is another value metric that is considered in this investing style.
Using GARP principles, we have run a screen to identify stocks that should offer good returns in the near term.
Screening Parameters
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
• 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 X-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)
Using these criteria we’ve narrowed down the universe of over 7,700 stocks to only 13.
Here are five from the list:
CBS Corporation is a mass media company that creates and distributes industry-leading content to the worldwide audience. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 6.6%.
Alliance Data Systems Corporation is a leading provider of transaction services, credit services and marketing services to retail companies. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 1.4%.
Heartland Financial USA, Inc. (HTLF - Free Report) is a multi-bank holding company that provides full-service retail banking through bank subsidiaries. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 11%.
Aetna Inc. is one of the nation's largest health benefits companies and one of its largest insurance and financial services organizations. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 9%.
Thermo Fisher Scientific, Inc. (TMO - Free Report) provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 1.5%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 GARP Stocks for Alluring Returns
Investors seeking stocks that have the potential to offer the best of growth as well as value investing may consider the investing strategy known as growth at a reasonable price or GARP. This strategy is particularly profitable in strongly rebounding markets after a massive slump.
However, one should not confuse GARP investing with the blend strategy. While blend strategy seeks to invest in both value and growth stocks, GARP investing requires both value and growth features in a single stock.
GARP – A Mix of Growth & Value Investing
Growth Metrics
A strong earnings growth history and impressive earnings growth prospects for the coming years put together is the main concept that GARP investors borrow from the growth investing strategy. However, they choose stocks with a more stable and reasonable growth rate instead of those with extremely high growth rates. In fact, growth rates between 10% and 20% are considered ideal in 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 flows also gain prominence in GARP investing.
Value Metrics
GARP investing gives precedence to one of the popular value metrics – price-to-earnings ratio. Though GARP investors chooses more stocks with higher price-to-earnings ratios than value investors do, they avoid picking companies with extremely high price-to-earnings ratios. Moreover, lower price-to-book value (P/B) ratio compare to industry average is another value metric that is considered in this investing style.
Using GARP principles, we have run a screen to identify stocks that should offer good returns in the near term.
Screening Parameters
• Zacks Rank less than or equal to #2
(Only Strong Buy and Buy rated stocks can get through.)
• 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 X-industry average
(P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)
Using these criteria we’ve narrowed down the universe of over 7,700 stocks to only 13.
Here are five from the list:
CBS Corporation is a mass media company that creates and distributes industry-leading content to the worldwide audience. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 6.6%.
Alliance Data Systems Corporation is a leading provider of transaction services, credit services and marketing services to retail companies. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 1.4%.
Heartland Financial USA, Inc. (HTLF - Free Report) is a multi-bank holding company that provides full-service retail banking through bank subsidiaries. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 11%.
Aetna Inc. is one of the nation's largest health benefits companies and one of its largest insurance and financial services organizations. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 9%.
Thermo Fisher Scientific, Inc. (TMO - Free Report) provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 1.5%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »