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Add These 4 GARP Stocks to Your Portfolio to Receive Handsome Returns
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Key Takeaways
The GARP strategy identifies undervalued stocks with solid growth prospects for maximum returns.
GARP combines value metrics like P/E ratios with growth rates between 10% and 25%.
CAT, STRL, VRT and FTI represent promising GARP opportunities with strong fundamentals.
If you are looking for a profitable portfolio of stocks offering the best of value and growth investing, you can try the growth at a reasonable price or GARP strategy.
The strategy helps investors gain exposure to undervalued stocks with impressive prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of value and growth investing. Caterpillar (CAT - Free Report) , Sterling Infrastructure, Inc. (STRL - Free Report) , Vertiv (VRT - Free Report) and TechnipFMC (FTI - Free Report) are some GARP stocks that hold promise.
GARP Metrics: Mix of Growth & Value Metrics
The GARP strategy seeks to offer an ideal investment by utilizing the best features of value and growth investing. Investors adopting the GARP approach prefer buying stocks 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
A 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 a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered to be ideal under the GARP strategy.
Another metric that growth and GARP investors consider is return on equity (ROE). GARP investors look for a strong and higher ROE than the industry average to identify superior stocks. Stocks with positive cash flows take precedence under the GARP plan.
Value Metrics
GARP investing prioritizes popular value metrics, the price-to-earnings (P/E) and price-to-book (P/B) ratios. Though this investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios.
Using the GARP principle, we ran a screen to identify stocks that should offer solid returns in the near term.
Last 5-year EPS & projected 3-5-year EPS growth rates between 10% and 25% (Strong EPS growth history and prospects ensure improving business.)
ROE (over the past 12 months) greater than the industry average (Higher ROE than the industry average indicates superior stocks.)
P/E and P/B ratios less than the M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued)
Here are four stocks from the 15 that made it through the screening process.
Caterpillar is investing for growth beyond the current cycle. The company plans roughly $1 billion in Sanford, NC, to build compact track loaders and telehandlers, expanding Cat Compact capacity as demand for compact equipment keeps rising. Up to $10 million for local workforce training supports the buildout. Its agreement to acquire Fabick Cat, a 37-location dealer across Missouri, Illinois, Wisconsin and Michigan’s Upper Peninsula, strengthens customer support while keeping service levels intact.
Autonomy is scaling too. Cat autonomous trucks have hauled over 13 billion tonnes, with Cat 775 fleets heading to two more Luck Stone operations. A FieldAI collaboration extends physical AI to jobsites and factories, while Solar Turbines leader Derrick York taking over Resource Industries adds experienced leadership.
The Zacks Consensus Estimate for CAT’s 2026 earnings has moved 1.3% north to $27.7 per share in the past 30 days. This Zacks Rank #2 company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 18.12%.
Sterling Infrastructure’s raised 2026 outlook, announced on Oct. 28, anchors a constructive near-term setup. Management now expects revenues of $4.63 billion to $4.73 billion and adjusted EBITDA of $970 million to $981 million, supported by a combined backlog of $6.14 billion, up 78%, including $2.00 billion of unsigned awards. Including design phases, the opportunity approaches $8 billion, with roughly 95% of E-Infrastructure work tied to mission-critical projects like data centers. That total excludes potential additional phases.
Management also sees significant profitable growth well beyond 2026, with multi-year visibility. CEC Electrical could exceed $1 billion in 2026 revenues. Long-term debt of $95.1 million adds flexibility, while the Oct. 5 general counsel appointment brings M&A experience. Softer Building Solutions demand is a modest offset.
The consensus estimate for this Zacks Rank #2 company’s 2026 earnings has remained steady at $20.02 per share in the past 30 days. STRL’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 27.25%.
Vertiv is positioned to benefit as AI data center buildouts demand faster power and cooling deployment. Raised 2026 guidance now calls for net sales of $14.45-$14.85 billion, adjusted EPS of $7.10-$7.20 and adjusted free cash flow of $2.6-$2.8 billion, with fourth-quarter organic growth guided at 49%-51%. The pending UtilityInnovation Group acquisition adds microgrid capabilities addressing grid constraints and is expected to be accretive to adjusted EPS in its first year. It is expected to be closed in the fourth quarter. Vertiv’s 2.3 MW CoolChip CDU qualified as NVIDIA DSX Ready. King Environmental and a new fluid-management ecosystem extend liquid-cooling services. Capacity investment and a net cash position support execution, keeping the near-term setup modestly constructive for shareholders heading into 2027.
The consensus mark for this Zacks Rank #2 company’s 2026 earnings has moved north by 0.7% to $6.8 per share in the past 30 days. VRT surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 11.97%.
TechnipFMC’s near-term setup looks constructive, supported by a steady flow of subsea awards. In September, PETRONAS selected the company for its Limbayong deepwater project offshore Malaysia, a significant integrated contract ($75-$250 million) built on the Subsea 2.0 configure-to-order platform. In October, Petrobras awarded a significant flexibles contract for pre-salt fields offshore Brazil. These wins support management’s confidence in reaching $10 billion of Subsea inbound in 2026, adding to a $16.4 billion backlog.
The full-year guidance calls for Subsea revenues of $9.2-$9.6 billion, a 21%-22% Subsea adjusted EBITDA margin and free cash flow of $1.3-$1.45 billion. In Surface Technologies, one operator’s iComplete pumping hours rose from about 405 to 635 monthly. Management remains committed to returning most free cash flow to shareholders.
The consensus estimate for this Zacks Rank #2 company’s 2026 earnings has been revised upward by 0.9% to $3.2 per share in the past 30 days. FTI’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 19.67%.
View the Zacks #1 Rank List
Image: Bigstock
Add These 4 GARP Stocks to Your Portfolio to Receive Handsome Returns
Key Takeaways
If you are looking for a profitable portfolio of stocks offering the best of value and growth investing, you can try the growth at a reasonable price or GARP strategy.
The strategy helps investors gain exposure to undervalued stocks with impressive prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of value and growth investing. Caterpillar (CAT - Free Report) , Sterling Infrastructure, Inc. (STRL - Free Report) , Vertiv (VRT - Free Report) and TechnipFMC (FTI - Free Report) are some GARP stocks that hold promise.
GARP Metrics: Mix of Growth & Value Metrics
The GARP strategy seeks to offer an ideal investment by utilizing the best features of value and growth investing. Investors adopting the GARP approach prefer buying stocks 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
A 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 a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered to be ideal under the GARP strategy.
Another metric that growth and GARP investors consider is return on equity (ROE). GARP investors look for a strong and higher ROE than the industry average to identify superior stocks. Stocks with positive cash flows take precedence under the GARP plan.
Value Metrics
GARP investing prioritizes popular value metrics, the price-to-earnings (P/E) and price-to-book (P/B) ratios. Though this investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios.
Using the GARP principle, we ran 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 Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Last 5-year EPS & projected 3-5-year EPS growth rates between 10% and 25% (Strong EPS growth history and prospects ensure improving business.)
ROE (over the past 12 months) greater than the industry average (Higher ROE than the industry average indicates superior stocks.)
P/E and P/B ratios less than the M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued)
Here are four stocks from the 15 that made it through the screening process.
Caterpillar is investing for growth beyond the current cycle. The company plans roughly $1 billion in Sanford, NC, to build compact track loaders and telehandlers, expanding Cat Compact capacity as demand for compact equipment keeps rising. Up to $10 million for local workforce training supports the buildout. Its agreement to acquire Fabick Cat, a 37-location dealer across Missouri, Illinois, Wisconsin and Michigan’s Upper Peninsula, strengthens customer support while keeping service levels intact.
Autonomy is scaling too. Cat autonomous trucks have hauled over 13 billion tonnes, with Cat 775 fleets heading to two more Luck Stone operations. A FieldAI collaboration extends physical AI to jobsites and factories, while Solar Turbines leader Derrick York taking over Resource Industries adds experienced leadership.
The Zacks Consensus Estimate for CAT’s 2026 earnings has moved 1.3% north to $27.7 per share in the past 30 days. This Zacks Rank #2 company surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 18.12%.
Sterling Infrastructure’s raised 2026 outlook, announced on Oct. 28, anchors a constructive near-term setup. Management now expects revenues of $4.63 billion to $4.73 billion and adjusted EBITDA of $970 million to $981 million, supported by a combined backlog of $6.14 billion, up 78%, including $2.00 billion of unsigned awards. Including design phases, the opportunity approaches $8 billion, with roughly 95% of E-Infrastructure work tied to mission-critical projects like data centers. That total excludes potential additional phases.
Management also sees significant profitable growth well beyond 2026, with multi-year visibility. CEC Electrical could exceed $1 billion in 2026 revenues. Long-term debt of $95.1 million adds flexibility, while the Oct. 5 general counsel appointment brings M&A experience. Softer Building Solutions demand is a modest offset.
The consensus estimate for this Zacks Rank #2 company’s 2026 earnings has remained steady at $20.02 per share in the past 30 days. STRL’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 27.25%.
Vertiv is positioned to benefit as AI data center buildouts demand faster power and cooling deployment. Raised 2026 guidance now calls for net sales of $14.45-$14.85 billion, adjusted EPS of $7.10-$7.20 and adjusted free cash flow of $2.6-$2.8 billion, with fourth-quarter organic growth guided at 49%-51%. The pending UtilityInnovation Group acquisition adds microgrid capabilities addressing grid constraints and is expected to be accretive to adjusted EPS in its first year. It is expected to be closed in the fourth quarter. Vertiv’s 2.3 MW CoolChip CDU qualified as NVIDIA DSX Ready. King Environmental and a new fluid-management ecosystem extend liquid-cooling services. Capacity investment and a net cash position support execution, keeping the near-term setup modestly constructive for shareholders heading into 2027.
The consensus mark for this Zacks Rank #2 company’s 2026 earnings has moved north by 0.7% to $6.8 per share in the past 30 days. VRT surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 11.97%.
TechnipFMC’s near-term setup looks constructive, supported by a steady flow of subsea awards. In September, PETRONAS selected the company for its Limbayong deepwater project offshore Malaysia, a significant integrated contract ($75-$250 million) built on the Subsea 2.0 configure-to-order platform. In October, Petrobras awarded a significant flexibles contract for pre-salt fields offshore Brazil. These wins support management’s confidence in reaching $10 billion of Subsea inbound in 2026, adding to a $16.4 billion backlog.
The full-year guidance calls for Subsea revenues of $9.2-$9.6 billion, a 21%-22% Subsea adjusted EBITDA margin and free cash flow of $1.3-$1.45 billion. In Surface Technologies, one operator’s iComplete pumping hours rose from about 405 to 635 monthly. Management remains committed to returning most free cash flow to shareholders.
The consensus estimate for this Zacks Rank #2 company’s 2026 earnings has been revised upward by 0.9% to $3.2 per share in the past 30 days. FTI’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 19.67%.