Yahoo Finance 4 GARP Stocks to Scoop Up for Maximum Returns
Growth at a reasonable price, or GARP, is an excellent strategy to earn quick investment profits. The GARP approach helps identify stocks priced below the market or any suitable target determined by a fundamental analysis.
The strategy helps investors gain exposure to stocks with impressive prospects and trading at a discount. GARP stocks have solid prospects in terms of cash flow, revenues, earnings per share (EPS) and others.
A portfolio based on the GARP strategy comprises stocks that offer the best value and growth investing. Microsoft MSFT, Adobe ADBE, W.W. Grainger GWW and Lincoln Electric LECO are some GARP stocks that hold promise.
GARP Metrics — Mix of Growth & Value Metrics
The GARP strategy offers ideal investment options by utilizing the best features of value and growth investing. Investors adopting the GARP approach will prefer stocks priced below the market or any reasonable target determined by fundamental analysis. The stocks have solid prospects regarding cash flow, revenues, EPS and others.
Growth Metrics
A strong earnings growth history and impressive earnings prospects are the primary 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. Growth rates between 10% and 30% are considered ideal under the GARP strategy.
Another growth metric considered by growth and GARP investors is the return on equity (ROE). GARP investors look for strong and higher ROE than the industry average to identify superior stocks. Moreover, stocks with a positive cash flow find precedence under the GARP plan.
Value Metrics
GARP investing prioritizes one of the popular value metrics — the price-to-earnings (P/E) ratio. Though the investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios. The price-to-book value (P/B) ratio is also taken into consideration.
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 Zacks Rank #1 (Strong Buy) or 2 (Buy).
Last 5-year EPS & projected 3-5-year EPS growth rates between 10% and 30% (Strong EPS growth history and prospects ensure improving business.)
ROE (over the past 12 months) greater than the industry average (Higher ROE compared with 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 of the five stocks that made it through the screen:
Microsoft is a broad-based technology provider whose offerings comprise operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools and video games. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Microsoft has a trailing four-quarter earnings surprise of 3.25%, on average. The Zacks Consensus Estimate for Microsoft’s fiscal 2023 earnings has moved 2.9% north to $9.61 per share in the past 60 days.
Adobe is a diversified software company that offers a wide range of products and services through the Software-as-a-Service (SaaS) model, managed services model and term subscription and pay-per-use models. ADBE currently carries a Zacks Rank #2.
Adobe has a trailing four-quarter earnings surprise of 2.58% on average. The Zacks Consensus Estimate for ADBE’s fiscal 2023 earnings has moved 1.2% north to $15.41 per share over the past 60 days.
W.W. Grainger is a broad-line, business-to-business distributor of maintenance, repair and operating products and services primarily in North America, Japan and the U.K. The company currently carries a Zacks Rank #12.
W.W. Grainger has a trailing four-quarter earnings surprise of 9.2%, on average. The Zacks Consensus Estimate for W.W. Grainger’s 2023 earnings has moved 5.2% north to $35.02 per share in the past 60 days.
Lincoln Electric is a full-line manufacturer and reseller of welding and cutting products ranging from welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumables and fluxes to regulators and torches used in cutting. The company currently carries a Zacks Rank #2.
Lincoln Electric has a trailing four-quarter earnings surprise of 5.04%, on average. The Zacks Consensus Estimate for LECO's 2023 earnings has moved north by 3.6% to $8.92 per share in the past 60 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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Microsoft Corporation (MSFT) : Free Stock Analysis Report
Lincoln Electric Holdings, Inc. (LECO) : Free Stock Analysis Report
W.W. Grainger, Inc. (GWW) : Free Stock Analysis Report
Adobe Inc. (ADBE) : Free Stock Analysis Report
