In the equity market, investments need to be prudently hedged to overcome uncertainties and limit losses related to external shocks. A question that often arises 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 Warren Buffett 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.

The GARP theory, while mixing the growth and value-investing principles, gives us a hybrid strategy showing 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 Qifu Technology, Inc. (QFIN Quick QuoteQFIN - Free Report) , KT Corporation (KT Quick QuoteKT - Free Report) , Atour Lifestyle Holdings Limited (ATAT Quick QuoteATAT - Free Report) and ZIM Integrated Shipping Services (ZIM Quick QuoteZIM - Free Report) and H&R Block (HRB Quick QuoteHRB - Free Report) .

More 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 in calculating 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.

Zacks Screening Criteria

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 Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential.

Our Picks

Here are the five stocks out of the nine that qualified the screening:

Qifu Technology: It is a leading Credit-Tech platform in China. The company provides a comprehensive suite of technology services to assist financial institutions and consumers and SMEs in the loan lifecycle, ranging from borrower acquisition, preliminary credit assessment, fund matching and post-facilitation services.

QFIN stock can also be an impressive GARP investment pick with its Zacks Rank #2 and Value Score of A. Apart from a discounted PEG and P/E, Qifu Technology also has a solid long-term expected growth rate of 63.5%.

KT Corporation: It is the largest integrated telecom and digital platform service provider based in South Korea. Its principal services include mobile, Broadband, IPTV, B2B communications and fixed-line telephony.

KT has an impressive growth rate of 11.3% for the next five years. The stock currently has a Value Score of A and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Atour: It is a leading hospitality and lifestyle company in China, with a distinct portfolio of lifestyle hotel brands. Atour is the leading upper midscale hotel chain in China and is the first Chinese hotel chain to develop a scenario-based retail business.

Atour carries a Zacks Rank of 2 and has a Value Score of A. ATAT has an impressive long-term expected growth rate of 33.7%.

ZIM: Israel-based ZIM is a leading global container liner shipping company with established operations in more than 90 countries, serving approximately 33,000 customers in over 300 ports worldwide. ZIM leverages digital strategies to provide customers with innovative seaborne transportation and logistics services and exceptional customer experience.

ZIM can also be an impressive value investment pick with its Zacks Rank #1 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 47.4%.

H&R Block: It is a leading provider of tax preparation services. The company provides assisted income tax return preparation, do-it-yourself (DIY) tax solutions, and other products and services associated with income tax return preparation in the United States, Canada and Australia.

HRB stock can be an impressive pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, H&R Block also has an impressive long-term historical growth rate of 15.5%.

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.

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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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