Add These 7 GARP Stocks to Your Portfolio for Maximum Returns

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 16.

Here are seven of the 16 stocks that made it through the screen:

VMware, Inc. VMW provides virtualization solutions from the desktop to the data center. The company delivered an average four-quarter positive earnings surprise of 3.8%. It carries a Zacks Rank #1.

Grand Canyon Education, Inc. LOPE is a regionally accredited provider of online postsecondary education services focused on offering graduate and undergraduate degree programs in core disciplines of education, business, and healthcare. This Zacks Rank #1 stock has delivered an average four-quarter earnings surprise of 12.3%.

Regeneron Pharmaceuticals, Inc. REGN is a biopharmaceutical company that discovers, develops, and intends to commercialize therapeutic medicines for the treatment of serious medical conditions. The company, which sports a Zacks Rank #1, delivered a positive earnings surprise of 11.8% in the last quarter.

Activision Blizzard, Inc. ATVI is a leading developer and publisher of console and online games. The Zacks Rank #2 stock surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion. It has delivered a positive average earnings surprise of 30.1%.

Fiserv, Inc. FISV, a Fortune 500 company, provides information management systems and services to financial and insurance industries. Last quarter, the stock came up with a positive earnings surprise of 2.9%. Fiserv currently holds a Zacks Rank #2.

Cognizant Technology Solutions Corporation CTSH is a leading provider of custom software development, integration and maintenance services that link e-business with core information systems for companies worldwide. The Zacks Rank #2 stock delivered a positive earnings surprise of 6.2% last quarter.

Dollar General Corporation DG is a discount retailer in the United States. The Zacks Rank #2 stock surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, delivering a positive average earnings surprise of 2.3%.

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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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Cognizant Technology Solutions Corporation (CTSH) : Free Stock Analysis Report
 
Vmware, Inc. (VMW) : Free Stock Analysis Report
 
Regeneron Pharmaceuticals, Inc. (REGN) : Free Stock Analysis Report
 
Dollar General Corporation (DG) : Free Stock Analysis Report
 
Grand Canyon Education, Inc. (LOPE) : Free Stock Analysis Report
 
Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report
 
Fiserv, Inc. (FISV) : Free Stock Analysis Report
 
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