In the equity market, investors are facing a particularly challenging backdrop as elevated Treasury yields, persistent inflation concerns and uncertainty over the Federal Reserve’s interest-rate path keep volatility elevated. The 10-year U.S. Treasury yield recently moved above 5%, while expectations of further rate hikes have added pressure to equity valuations. At the same time, resilient corporate earnings and continued enthusiasm around artificial intelligence have helped stocks weather the rise in borrowing costs.

Against this backdrop, the debate between value and growth investing becomes particularly relevant. Rather than choosing exclusively between discounted stocks and high-growth companies, investors may consider a hybrid approach that seeks reasonable valuations alongside sustainable earnings growth.

This is where the GARP (growth at a reasonable price) strategy comes into play. The investing track of Warren Buffett and the evolution of his approach over the decades also illustrate why combining valuation discipline with quality and growth can be useful across different market environments.

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 Marathon Petroleum (MPC Quick QuoteMPC - Free Report) , PBF Energy (PBF Quick QuotePBF - Free Report) , Ultrapar Participacoes (UGP Quick QuoteUGP - Free Report) and Repsol, S.A. (REPYY Quick QuoteREPYY - 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, the addition of 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.

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 purposes)

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 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:

Marathon Petroleum: The company is a leading U.S. refiner with a large, integrated refining and logistics network, supported by majority ownership of MPLX and its fee-based midstream cash flows. MPC’s scale, advantaged crude access and diversified operations position it to benefit from favorable refining margins, global capacity outages and tight U.S. fuel inventories.

Marathon Petroleum can be an impressive GARP investment pick with its Zacks Rank #1, a Value Score of A and a Growth Score of A. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 53.3%.

PBF Energy: This is a leading U.S. independent refiner operating six refineries across California, Louisiana, New Jersey, Delaware and Ohio, with combined crude-processing capacity of about 1 million barrels per day. PBF’s diversified refining footprint and logistics infrastructure enable it to process varied crude feedstocks and market transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products.

PBF carries a Zacks Rank #1 at present, along with a Value Score of A and a Growth Score of A. PBF Energy also has an impressive five-year expected growth rate of 55.2%.

Ultrapar Participaçoes: The company operates across Brazil’s energy, mobility and logistics sectors through Ultragaz, Ipiranga, Ultracargo and Hidrovias. UGP’s diversified businesses span fuel distribution, gas, service stations, liquid bulk storage, waterway and multimodal logistics, port operations and renewable energy, serving residential, commercial, industrial and agricultural customers across Brazil and international markets.

Ultrapar Participaçoes 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, UGP has an impressive long-term historical growth rate of 21.4%.

Repsol: This is a diversified multi-energy company spanning oil and gas exploration and production, refining, fuel marketing, natural gas, electricity generation and low-carbon businesses. Repsol’s portfolio also includes renewable power, hydrogen, sustainable and synthetic fuels, EV charging, chemicals and decarbonization solutions, providing exposure to both conventional energy and the transition toward lower-carbon energy sources.

REPYY can also be an impressive GARP investment pick with its Zacks Rank #2, a Value Score of A and a Growth Score of B. Apart from a discounted PEG and P/E, the stock also has a solid long-term expected growth rate of 21%.

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