7 GARP Stocks That Should Feature in Your Portfolio

If you’re looking for a profitable portfolio of stocks that will offer the best of value and growth investing, try the growth at a reasonable price or GARP strategy. It helps an investor gain exposure to stocks that are undervalued and have impressive growth prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of both value and growth investing.

GARP Metrics – Mix of Growth & Value Metrics

The GARP approach helps to zero in on 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.

Growth Metrics

Strong earnings growth history and impressive earnings prospects are the main aspects 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 another value metric that is 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).

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 indicates that the stocks are undervalued.)

These few criteria have narrowed down the universe of over 7,700 stocks to only 11.

Here are seven of the 11 stocks that made it through the screen:

Tempur Sealy International, Inc. TPX is involved in the development, manufacturing and marketing of bedding products in North America and internationally. The company has an average four-quarter positive earnings surprise of 13.1% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

MSCI Inc. MSCI is an independent provider of research-driven insights and tools for institutional investors. The company has an average four-quarter positive earnings surprise of 5% and carries a Zacks Rank #1.

Zoetis Inc. ZTS discovers, develops, manufactures and markets veterinary vaccines and medicines, complemented by diagnostic products and genetic tests and supported by a range of services. The company has an average four-quarter positive earnings surprise of 4.5% and holds a Zacks Rank #1.

Carter's, Inc. CRI is a leading provider of apparel and related products exclusively for babies and young children. The company has an average four-quarter positive earnings surprise of 8.9% and carries a Zacks Rank #2.

The Toro Company TTC is a leading worldwide provider of innovative solutions for the outdoor environment, including turf, snow and ground engaging equipment and irrigation and outdoor lighting solutions. The company has an average four-quarter positive earnings surprise of 7.4% and carries a Zacks Rank #2.

Darden Restaurants, Inc. DRI owns and operates more than 1,700 restaurants across the United States and Canada that generate over $7 billion in annual sales. The company has an average four-quarter positive earnings surprise of 3% and carries a Zacks Rank #2.

Illinois Tool Works Inc. ITW manufactures and sells industrial products and equipment worldwide. The company has an average four-quarter positive earnings surprise of 3.3% and carries a Zacks Rank #2.

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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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MSCI Inc (MSCI) : Free Stock Analysis Report
 
Tempur Sealy International, Inc. (TPX) : Free Stock Analysis Report
 
Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report
 
Zoetis Inc. (ZTS) : Free Stock Analysis Report
 
Carter's, Inc. (CRI) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
Toro Company (The) (TTC) : Free Stock Analysis Report
 
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