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Growth at a reasonable price or GARP is the ideal strategy for investors on the hunt for stocks at bargain prices. This well-liked strategy helps investors gain exposure to stocks that have impressive growth prospects but are trading at a discount. Unlike the blend strategy, a portfolio created on the GARP way of investing is expected to have stocks that offer the best of both value and growth investing.
GARP Metrics – Mix of Growth & Value Metrics
The GARP strategy seeks to offer great returns by utilizing the best features of both value and growth investing. Investors adopting the GARP approach will prefer stocks that are 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
Both 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 also a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under 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 flow find precedence under the GARP plan.
Value Metrics
GARP investing gives priority to one of the popular value metrics – price-to-earnings (P/E) ratio. Though this investing style picks stocks with higher P/E ratios compared to value investors, it avoids companies with extremely high P/E ratios. Moreover, the price-to-book value (P/B) ratio is another value metric that is considered.
Using the GARP principle, we have run 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 favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) to make the strategy foolproof.
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 M-industry average (P/E and P/B ratios less than that of the industry indicates that the stocks are undervalued.)
These few criteria have narrowed down the universe of over 7,700 stocks to only six.
Here are five of the six stocks that made it through the screen:
Microchip Technology Inc. (MCHP - Free Report) develops and manufactures specialized semiconductor products for a wide variety of embedded control applications. The company has an average four-quarter positive earnings surprise of 12.2% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microchip’s one-year return of 50.6% is higher than the Zacks Semiconductor- Analog & Mixed industry’s addition of 36.5%.
Pasadena, CA-based East West Bancorp Inc. (EWBC - Free Report) is the holding company for East West Bank, East West Capital Trust I, East West Capital Trust II and Risk Services Inc. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 7.63%.
East West Bancorp’s one-year return of 59.9% outpaces the Zacks Bank-West industry’s addition of 42.7%.
Los Angeles CA-based CBRE Group Inc. operates as a commercial real estate services and investment company. It has an average four-quarter positive earnings surprise of 8.24% and carries a Zacks Rank #2.
Notably, CBRE rallied 16.6% in the last one year, while the Zacks Real Estate Operations industry gained 8%.
Toronto-based Colliers International Group Inc (CIGI - Free Report) is a provider of commercial real estate services. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 0.92%.
Further, the stock outperformed the Zacks Real Estate Operations industry in the last one year. While Colliers added 28.4%, the industry gained 8%.
Georgia-based Primerica Inc. (PRI - Free Report) distributes financial products to middle income households in the U.S. and Canada. It has an average four-quarter positive earnings surprise of 5.61% and a Zacks Rank #2.
Primerica’s one-year gain of 91.3% is way higher than the Zacks Insurance Life industry’s increase of 35.8%.
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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Top 5 GARP Stocks for Marvelous Returns
Growth at a reasonable price or GARP is the ideal strategy for investors on the hunt for stocks at bargain prices. This well-liked strategy helps investors gain exposure to stocks that have impressive growth prospects but are trading at a discount. Unlike the blend strategy, a portfolio created on the GARP way of investing is expected to have stocks that offer the best of both value and growth investing.
GARP Metrics – Mix of Growth & Value Metrics
The GARP strategy seeks to offer great returns by utilizing the best features of both value and growth investing. Investors adopting the GARP approach will prefer stocks that are 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
Both 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 also a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under 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 flow find precedence under the GARP plan.
Value Metrics
GARP investing gives priority to one of the popular value metrics – price-to-earnings (P/E) ratio. Though this investing style picks stocks with higher P/E ratios compared to value investors, it avoids companies with extremely high P/E ratios. Moreover, the price-to-book value (P/B) ratio is another value metric that is considered.
Using the GARP principle, we have run 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 favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) to make the strategy foolproof.
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 M-industry average (P/E and P/B ratios less than that of the industry indicates that the stocks are undervalued.)
These few criteria have narrowed down the universe of over 7,700 stocks to only six.
Here are five of the six stocks that made it through the screen:
Microchip Technology Inc. (MCHP - Free Report) develops and manufactures specialized semiconductor products for a wide variety of embedded control applications. The company has an average four-quarter positive earnings surprise of 12.2% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microchip’s one-year return of 50.6% is higher than the Zacks Semiconductor- Analog & Mixed industry’s addition of 36.5%.
Pasadena, CA-based East West Bancorp Inc. (EWBC - Free Report) is the holding company for East West Bank, East West Capital Trust I, East West Capital Trust II and Risk Services Inc. This Zacks Rank #2 company has an average four-quarter positive earnings surprise of 7.63%.
East West Bancorp’s one-year return of 59.9% outpaces the Zacks Bank-West industry’s addition of 42.7%.
Los Angeles CA-based CBRE Group Inc. operates as a commercial real estate services and investment company. It has an average four-quarter positive earnings surprise of 8.24% and carries a Zacks Rank #2.
Notably, CBRE rallied 16.6% in the last one year, while the Zacks Real Estate Operations industry gained 8%.
Toronto-based Colliers International Group Inc (CIGI - Free Report) is a provider of commercial real estate services. This Zacks Rank #2 stock has an average four-quarter positive earnings surprise of 0.92%.
Further, the stock outperformed the Zacks Real Estate Operations industry in the last one year. While Colliers added 28.4%, the industry gained 8%.
Georgia-based Primerica Inc. (PRI - Free Report) distributes financial products to middle income households in the U.S. and Canada. It has an average four-quarter positive earnings surprise of 5.61% and a Zacks Rank #2.
Primerica’s one-year gain of 91.3% is way higher than the Zacks Insurance Life industry’s increase of 35.8%.
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 »