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Growth at a reasonable price or GARP strategy is considered to be one of the most fruitful investment options as it provides the best of value and growth investing. The strategy helps investors pick stocks that are available at a discount and have solid growth potential. Though it looks to be quite similar to the blend strategy, there lies a significant difference between the two. While the blend strategy chooses value and growth stocks, GARP investing looks for stocks that provide the best of both value and growth investing.
Key Features of GARP
The GARP strategy seeks to offer an ideal investment option by borrowing the best features of both value and growth investing. While investors following the GARP strategy give precedence to value ratios such as price-to-earnings (P/E) and price-to-book value (P/B) ratio, they also use earnings per share (EPS) growth rates and return on equity (ROE) like growth investors to identify potential stocks. However, the range of the values of metrics that are considered by GARP investing may differ from those that are considered by value or growth investors.
While value investors look for an extremely low P/E ratio to choose a company, the GARP strategy focuses on acquiring stocks that have relatively higher ratios but less than their respective industry median. Meanwhile, GARP investing chooses stocks with P/B ratios lower than their industries similar to value investors.
Separately, investors following the GARP strategy give priority to stocks with an impressive EPS growth track record over those with extremely high growth rates. Companies that qualify the norms of GARP investing are believed to have past as well as expected growth rates between 10% and 20%.over the next few years
Another metric, which is borrowed by GARP investors from growth investing, is return on equity (ROE). Like growth investors, the GARP strategy looks for stocks with higher ROE than their industry median.
Screening Parameters
Along with the criteria we discussed in the above section, we have also considered favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or #2 (Buy) – to make the strategy more profitable.
• 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 median (Higher ROE compared to the industry median indicates superior stocks.)
• P/E and P/B ratios less than X-industry median (P/E and P/B ratios less than that of the industry median indicate that the stocks are undervalued.)
Just these few criteria have narrowed down the universe of over 7,700 stocks to only five.
Here are the five stocks that made it through the screen:
Helen of Troy Limited (HELE - Free Report) is a leading designer, producer and marketer of brand name consumer products. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 23.2%.
Cognizant Technology Solutions Corporation (CTSH - Free Report) delivers high-quality, cost-effective, full life cycle solutions to complex software development and maintenance problems. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 7.3%.
IPG Photonics Corporation (IPGP - Free Report) is the world leader in high-power fiber lasers and amplifiers. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 2.1%.
TriCo Bancshares (TCBK - Free Report) is a holding company for Tri Counties Bank, which holds a Zacks Rank #2. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 16.96, lower than the industry average of 18.72.
Get the rest of the 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.
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 with Impressive Prospects
Growth at a reasonable price or GARP strategy is considered to be one of the most fruitful investment options as it provides the best of value and growth investing. The strategy helps investors pick stocks that are available at a discount and have solid growth potential. Though it looks to be quite similar to the blend strategy, there lies a significant difference between the two. While the blend strategy chooses value and growth stocks, GARP investing looks for stocks that provide the best of both value and growth investing.
Key Features of GARP
The GARP strategy seeks to offer an ideal investment option by borrowing the best features of both value and growth investing. While investors following the GARP strategy give precedence to value ratios such as price-to-earnings (P/E) and price-to-book value (P/B) ratio, they also use earnings per share (EPS) growth rates and return on equity (ROE) like growth investors to identify potential stocks. However, the range of the values of metrics that are considered by GARP investing may differ from those that are considered by value or growth investors.
While value investors look for an extremely low P/E ratio to choose a company, the GARP strategy focuses on acquiring stocks that have relatively higher ratios but less than their respective industry median. Meanwhile, GARP investing chooses stocks with P/B ratios lower than their industries similar to value investors.
Separately, investors following the GARP strategy give priority to stocks with an impressive EPS growth track record over those with extremely high growth rates. Companies that qualify the norms of GARP investing are believed to have past as well as expected growth rates between 10% and 20%.over the next few years
Another metric, which is borrowed by GARP investors from growth investing, is return on equity (ROE). Like growth investors, the GARP strategy looks for stocks with higher ROE than their industry median.
Screening Parameters
Along with the criteria we discussed in the above section, we have also considered favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or #2 (Buy) – to make the strategy more profitable.
• 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 median
(Higher ROE compared to the industry median indicates superior stocks.)
• P/E and P/B ratios less than X-industry median
(P/E and P/B ratios less than that of the industry median indicate that the stocks are undervalued.)
Just these few criteria have narrowed down the universe of over 7,700 stocks to only five.
Here are the five stocks that made it through the screen:
The Goldman Sachs Group, Inc. (GS - Free Report) is a global investment banking and securities firm. It has an average four-quarter positive earnings surprise of 15.3% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Helen of Troy Limited (HELE - Free Report) is a leading designer, producer and marketer of brand name consumer products. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 23.2%.
Cognizant Technology Solutions Corporation (CTSH - Free Report) delivers high-quality, cost-effective, full life cycle solutions to complex software development and maintenance problems. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 7.3%.
IPG Photonics Corporation (IPGP - Free Report) is the world leader in high-power fiber lasers and amplifiers. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 2.1%.
TriCo Bancshares (TCBK - Free Report) is a holding company for Tri Counties Bank, which holds a Zacks Rank #2. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 16.96, lower than the industry average of 18.72.
Get the rest of the 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.
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 »