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 Dow (DOW Quick QuoteDOW - Free Report) , Valero Energy (VLO Quick QuoteVLO - Free Report) , Ultrapar Participacoes (UGP Quick QuoteUGP - Free Report) and Nexa Resources (NEXA Quick QuoteNEXA - 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.

Growth Score of less than or equal to B: Our research shows that stocks with a Growth Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3, offer the best upside potential.

Our PEG-Driven Picks

Here are four stocks that qualified the screening:

Dow: It is a material science company, providing a world-class portfolio of advanced, sustainable and leading-edge products. The “Transform to Outperform” program will boost productivity and deliver meaningful EBITDA benefits. Investment in high-return projects should also be accretive to Dow’s earnings.

DOW can be an impressive GARP investment pick with its Zacks Rank #1, a Value Score of B and a Growth Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 56%.

Valero: San Antonio, TX-based Valero stands out among independent refiners with 15 refineries across the United States, Canada and the Caribbean, totaling 3.2 million barrels per day (MMBPD) of capacity. The company’s diversified and strategically located refinery network differentiates it from peers, allowing access to multiple markets and supporting strong refining margins, aided by the ability to process cost-effective crude.

VLO has a Zacks Rank #1, a Value Score of B and a Growth Style Score of B. Valero also has an impressive five-year historical growth rate of 41.5%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Ultrapar Participacoes: It operates across energy, mobility and logistics infrastructure sectors through Ultragaz, Ipiranga, Ultracargo and Hidrovias. The company distributes fuels, biofuels, lubricants and natural gas, operates Ipiranga service stations and AmPm convenience stores and sells additive fuels under the Ipimax brand across Brazil and international markets.

UGP stock can be an impressive GARP investment pick with its Zacks Rank #2, a Value Score of A and a Growth Score of A. Apart from a discounted PEG and P/E, Ultrapar Participacoes has an impressive long-term historical growth rate of 14.5%.

Nexa: The company is a global zinc mining and smelting company operating through the Mining and Smelting segments. It produces zinc, gold, sulfuric acid and zinc oxide, along with silver, copper and lead by-products. Nexa operates polymetallic mines in Peru and Brazil, plus zinc smelters in both countries.

NEXA can also be an impressive GARP investment pick with its Zacks Rank #2, a Value Score of A and a Growth Score of A. Apart from a discounted PEG and P/E, the stock also has a solid long-term historical growth rate of 49%.