The Growth At a Reasonable Price (GARP) strategy…leads to the identification of stocks that are 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. Using the GARP principle, we have run a screen to identify stocks that should offer solid returns in the near term [and found 7 such stocks of which 4 are highlighted in this post.]
This version of the original article, by Zacks Equity Research, has been edited* here by munKNEE.com for length (…) and clarity ([ ]) to provide a fast & easy read. For the latest – and most informative – financial articles sign up (in the top right corner) for your FREE bi-weekly Market Intelligence Report newsletter (see sample here)
…The GARP strategy seeks to offer an ideal investment by utilizing the best features of both value and growth investing.
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. #munKNEE.com being given away – Check it out!
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 and identified 7 stocks that should offer solid returns in the near term. Below are 4 of the 7 stocks that made it through the screen:
1. EMCOR Group, Inc. (EME) is a provider of mechanical and electrical construction as well as industrial and energy infrastructure services for a diverse range of businesses.
- The company carries a Zacks Rank #1 (Strong Buy).
- It has delivered an average four-quarter earnings surprise of 24.5%.
2. Koppers Holdings Inc. (KOP) is an integrated global provider of treated wood products, wood treatment chemicals, and carbon compounds.
The company sports a Zacks Rank #1.
It has delivered an average four-quarter earnings surprise of 18.4%.
3. O’Reilly Automotive, Inc. (ORLY) is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. It sells products to both Do-it-Yourself (DIY) customers, Do-it-for-Me (DIFM) and professional installers.
- The company flaunts a Zacks Rank #1.
- It delivered an average positive earnings surprise of 3.26% in the trailing four quarters.
4. Celanese Corporation (CE) is a global hybrid chemical company that produces chemical substances and materials.
- The company has a Zacks Rank #2 (Buy).
- It delivered an average positive earnings surprise of 13.3% in the trailing four quarters.