Growth at a reasonable price, or GARP, is an excellent strategy to earn quick profits out of investments. The GARP approach leads to the 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.
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.
GARP investing gives priority to one of the popular value metrics – the 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.
Along with the criteria discussed in the above section, we have considered a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy).
Last 5-year EPS & projected 3–5 year EPS growth rates between 10% and 20% (Strong EPS growth history and prospects ensure improving business.)
ROE (over the past 12 months) greater than the industry average (Higher ROE compared to the industry average indicates superior stocks.)
P/E and P/B ratios less than M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)
Here are four of the six stocks that made it through the screen:
Ulta Beauty ULTA is a leading beauty retailer in the United States, which offers a wide range of products, including cosmetics, fragrance, skincare, hair care, bath and body products, and salon styling tools in stores. The company currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ulta Beauty has a trailing four-quarter earnings surprise of 49.84%, on average. The Zacks Consensus Estimate for fiscal 2023 earnings has moved north by 8.1% to $20.07 per share over the past 30 days.
H&R Block HRB is a provider of tax preparation services such as assisted income tax return preparation, do-it-yourself tax solutions and other products and services associated with income tax return preparation. The company flaunts a Zacks Rank #1.
H&R Block has a trailing four-quarter earnings surprise of 21.04%, on average. The Zacks Consensus Estimate for HRB’s fiscal 2022 earnings has moved north by 16.6% to $3.38 per share over the past 30 days.
Carlisle Companies CSL is engaged in the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products and finishing equipment. The company flaunts a Zacks Rank #1 currently.
Carlisle has a trailing four-quarter earnings surprise of 23.01%, on average. The Zacks Consensus Estimate for CSL’s 2022 earnings has moved north by 10.7% to $17.64 per share over the past 30 days.
Broadcom AVGO is a designer, developer and global supplier of a broad range of semiconductor devices focused on complex digital and mixed-signal complementary metal oxide semiconductor-based devices and analog III-V based products. The company carries a Zacks Rank #2 currently.
Broadcom has a trailing four-quarter earnings surprise of 2.19%, on average. The Zacks Consensus Estimate for 2022 earnings has moved north by 3.6% to $36.96 per share over the past 30 days.
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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.
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Ulta Beauty Inc. (ULTA) : Free Stock Analysis Report
H&R Block, Inc. (HRB) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
Carlisle Companies Incorporated (CSL) : Free Stock Analysis Report
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