We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Top 4 PEG-Rated GARP Picks Blending Value With Growth Potential
Read MoreHide Full Article
Key Takeaways
GARP investing combines value and growth principles using the PEG ratio as a key metric.
Micron, StoneCo, PagSeguro, and Daktronics meet PEG-driven criteria for strong upside.
Each pick offers discounted PEG and P/E ratios alongside robust long-term growth rates.
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 the Oracle of Omaha 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.
Per the GARP theory, the strategic mingling of growth and value-investing principles gives us a hybrid strategy, offering an ideal investment by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid, sustainable growth potential (Investopedia).
Several stocks that have surged significantly in recent years have demonstrated the overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here, we will discuss the success of four such stocks. These are Micron Technology (MU - Free Report) , StoneCo (STNE - Free Report) , PagSeguro Digital (PAGS - Free Report) and Daktronics (DAKT - Free Report) .
A Few More Words 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 ratios to 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.
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 Value Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential.
Our PEG-Driven Picks
Here are four stocks that qualified the screening:
Micron: Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. Micron’s latest quarterly performance underscores its strategic positioning in the rapidly expanding AI-driven memory and storage markets. The positive impact of inventory improvement across multiple end markets is adding to top-line growth.
Microncan be an impressive GARP investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 28.5%.
StoneCo: It is a Brazilian fintech company that provides payment, digital banking, credit, and software solutions for merchants across in-store, online and mobile channels. It serves SMBs, marketplaces, e-commerce platforms and software vendors, distributing solutions through proprietary and franchised Stone Hubs and a direct sales team.
STNE stock can also be an impressive GARP investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, PAHC has a solid long-term expected growth rate of 30.3%.
PagSeguro Digital: This is a Brazil-based fintech providing digital banking, payment, credit, insurance, and investment solutions to consumers, entrepreneurs, and SMBs in Brazil and abroad. PagSeguro Digital’s offerings include point-of-sale and online payments, debit/credit/prepaid cards, loans, insurance products, investment services and an online marketplace, Shopping PagBank.
PAGS stock can be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, PagSeguro Digital also has an impressive long-term expected growth rate of 14.2%.
Daktronics: The company designs, manufactures and sells electronic scoreboards, LED displays, video walls, and digital billboards for sports, commercial, and transportation markets worldwide. Operating across Commercial, Live Events, High School & Recreation, Transportation and International segments, Daktronics also offers control software, sound systems and dynamic messaging solutions.
Daktronics can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, the stock also has a solid long-term historical growth rate of 59.5%.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Top 4 PEG-Rated GARP Picks Blending Value With Growth Potential
Key Takeaways
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 the Oracle of Omaha 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.
Per the GARP theory, the strategic mingling of growth and value-investing principles gives us a hybrid strategy, offering an ideal investment by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid, sustainable growth potential (Investopedia).
Several stocks that have surged significantly in recent years have demonstrated the overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here, we will discuss the success of four such stocks. These are Micron Technology (MU - Free Report) , StoneCo (STNE - Free Report) , PagSeguro Digital (PAGS - Free Report) and Daktronics (DAKT - Free Report) .
A Few More Words 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 ratios to 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.
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 Value Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential.
Our PEG-Driven Picks
Here are four stocks that qualified the screening:
Micron: Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. Micron’s latest quarterly performance underscores its strategic positioning in the rapidly expanding AI-driven memory and storage markets. The positive impact of inventory improvement across multiple end markets is adding to top-line growth.
Microncan be an impressive GARP investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 28.5%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
StoneCo: It is a Brazilian fintech company that provides payment, digital banking, credit, and software solutions for merchants across in-store, online and mobile channels. It serves SMBs, marketplaces, e-commerce platforms and software vendors, distributing solutions through proprietary and franchised Stone Hubs and a direct sales team.
STNE stock can also be an impressive GARP investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, PAHC has a solid long-term expected growth rate of 30.3%.
PagSeguro Digital: This is a Brazil-based fintech providing digital banking, payment, credit, insurance, and investment solutions to consumers, entrepreneurs, and SMBs in Brazil and abroad. PagSeguro Digital’s offerings include point-of-sale and online payments, debit/credit/prepaid cards, loans, insurance products, investment services and an online marketplace, Shopping PagBank.
PAGS stock can be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, PagSeguro Digital also has an impressive long-term expected growth rate of 14.2%.
Daktronics: The company designs, manufactures and sells electronic scoreboards, LED displays, video walls, and digital billboards for sports, commercial, and transportation markets worldwide. Operating across Commercial, Live Events, High School & Recreation, Transportation and International segments, Daktronics also offers control software, sound systems and dynamic messaging solutions.
Daktronics can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, the stock also has a solid long-term historical growth rate of 59.5%.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report