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 other metrics.
A portfolio based on the GARP strategy comprises stocks that offer the best value and growth investment. American Express AXP, Pool Corp. POOL, Raymond James Financial RJF and Cencora, Inc. COR are some GARP stocks that hold promise.
The GARP strategy offers ideal investment options utilizing the best value and growth investing features. Investors adopting the GARP approach prefer stocks priced below the market or any reasonable target determined by fundamental analysis. The stocks have solid prospects based on cash flow, revenues, EPS, etc.
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 rates, pursuing stocks with a more stable and reasonable growth rate is a tactic of GARP investors. The GARP strategy considers growth rates between 10% and 20% ideal.
Another metric considered by growth and GARP investors is 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. The investing style picks stocks with higher P/E ratios than value investors but 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.
Along with the criteria discussed in the above section, we have considered a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Last five-year EPS & projected 3-5-year EPS growth rates between 10% and 20% (Strong EPS growth history and prospects ensure improving business.)
ROE (in the past 12 months) greater than the industry average (Higher ROE than the industry average indicates superior stocks.)
P/E and P/B ratios are less than the M-industry average (P/E and P/B ratios less than the industry indicate that the stocks are undervalued.)
Here are the four stocks out of the six that made it through the screen, each carrying a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.
American Express Company is a diversified financial services company, offering charge and credit payment card products, and travel-related services worldwide. Its growth initiatives, like launching new products, reaching new agreements and forging alliances, are boosting its revenues.
Consumer spending on travel and entertainment, which carries higher margins for AmEx, is advancing well. Its focus on millennials and Gen-Z consumers who exhibit strong dining preferences positions the company for long-term growth. Its solid cash-generation abilities enable the pursuit of business investments and share buybacks and dividend payments.
AmEx has gained 56.8% in the past year. It has a trailing four-quarter earnings surprise of 6.89%, on average. The Zacks Consensus Estimate for AXP’s 2025 earnings has moved north by 1% to $15.33 per share over the past 30 days.
Pool Corp. is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. In addition, the company is a leading regional wholesale distributor of irrigation and landscape products.
Increased focus on enhanced product offerings, improved customer service tools and a robust distribution network bode well for the company’s near-term prospects. The company continues to focus on growing its franchise network and expanding support for independent retail dealers. POOL is optimistic regarding its technology investments and anticipates them to provide future sales and productivity gains. This and the focus on Pool360 technology rollouts and expanded digital marketing efforts bode well.
Pool has declined 7.2% in the past year. It has a trailing four-quarter earnings surprise of 1.4%, on average. The Zacks Consensus Estimate for POOL’s 2025 earnings has remained steady at $11.91 per share over the past 30 days.
Raymond James Financial provides financial services mainly in the United States and Canada. Acquisitions, which enhance the company’s product offerings, diversify revenues and expand its footprint, are expected to continue bolstering the top line. Our estimate for net revenues implies a CAGR of 6.3% by fiscal 2027. The company's solid liquidity position will likely keep its capital distribution activities sustainable.
The majority of Raymond James’ businesses have been performing relatively well amid stiff competition. The revival of the investment banking (IB) business on the back of the robust pipeline and deal-making activity will support related fees. We project IB fees to rise 22% in fiscal 2025. Strategic acquisitions, which enhance its product offerings, diversify revenues and expand its footprint globally, are expected to bolster the top line.
Raymond James has gained 56.1% in the past year. It has a trailing four-quarter earnings surprise of 7.78%, on average. The Zacks Consensus Estimate for RJF’s fiscal 2025 earnings has moved north by 0.9% to $11.02 per share over the past 30 days.
Cencora is one of the world’s largest pharmaceutical service companies. It focuses on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. The company is well-positioned to deliver long-term sustainable growth on the back of its diverse and inclusive teams.
Cencora is an ideal partner for manufacturers looking to launch products. This is due to its extensive worldwide distribution network and global platform of commercialization services. Thanks to its growing presence in the pharmaceutical industry, Cencora can establish partnerships with pharmaceutical companies at an early stage of product development and market itself as an integrated partner capable of assisting in the successful commercialization of its products (in addition to providing logistics and distribution services). These factors are likely to have favored the stock’s growth.
Cencora has gained 10% in the past year. It has a trailing four-quarter earnings surprise of 6.97%, on average. The Zacks Consensus Estimate for COR’s fiscal 2025 earnings has moved north by 1.4% to $15.14 per share over the past 30 days.
Get the remaining stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in and see what gems come out.
Click here to sign up for a free trial of the Research Wizard today.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
American Express Company (AXP) : Free Stock Analysis Report
Pool Corporation (POOL) : Free Stock Analysis Report
Cencora, Inc. (COR) : Free Stock Analysis Report
Raymond James Financial, Inc. (RJF) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.