Growth at a reasonable price or GARP is an excellent strategy to earn quick profits out of investments. The GARP approach leads to identification of stocks that are priced below the market or any reasonable target determined by fundamental analysis.
Further, the strategy helps investors in gaining exposure to stocks that have impressive prospects and are trading at a discount. GARP stocks also have solid prospects in terms of cash flow, revenues, earnings per share (EPS) and so on. That means a portfolio created on the basis of GARP strategy 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 an ideal investment by utilizing the best features of both value and growth investing. Investors adopting the GARP approach will prefer to buy stocks that are priced below the market or any reasonable target determined by fundamental analysis. These stocks also have solid prospects in 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 also 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) (Strong EPS growth history and prospects ensure improving business.) Last 5-year EPS & projected 3–5 year EPS growth rates between 10% and 20% (Higher ROE compared to the industry average indicates superior stocks.) ROE (over the past 12 months) greater than the industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.) P/E and P/B ratios less than M-industry average Here are four of the six stocks that made it through the screen: ResMed Inc. ( RMD Quick Quote RMD - Free Report) is a designer, manufacturer and distributor of generators, masks and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders. The company sports a Zacks Rank #1. It beat estimates in the trailing four quarters by 5.34%, on average. You can see . the complete list of today’s Zacks #1 Rank stocks here Microsoft Corporation MSFT is a broad-based technology provider whose offerings include software, hardware, online and support services. The company carries a Zacks Rank #2. It has an average positive surprise of 9.64% in the trailing four quarters. Zoetis Inc. ZTS is involved in the discovery, development, manufacturing and commercialization of animal health medicines and diagnostic products. The company carries a Zacks Rank #2. It has an average positive surprise of 7.34% in the trailing four quarters. Ruth’s Hospitality Group, Inc. RUTH is a fine dining steakhouse company that builds, operates and franchises restaurants. The company carries a Zacks Rank #2. It beat estimates in the trailing four quarters by 17.18%, on average. 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.