The equity market in 2025 so far has been characterized by heightened volatility, primarily driven by escalating geopolitical tensions and renewed trade conflicts. Trump's aggressive tariff policies have triggered retaliatory actions from major economies like China and, most recently, the European Union. This resulted in increased uncertainty, disrupting supply chains and dampening investor confidence. Adding to the instability, the Federal Reserve's recent decision to maintain interest rates at current levels has further unsettled markets. Many investors had anticipated a rate cut to offset economic pressure stemming from trade disruptions and geopolitical risks.
In such a situation, investments always need to be prudently hedged in order to limit losses related to external shocks. A question that often arises is whether one should resort to a value strategy that seeks discounted stocks or opt for growth investing in times of extreme market instability. The investing track of the Oracle of Omaha over the past few decades and his gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor might give us all the answers.
Several stocks, which have surged significantly in the recent past, show an overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here, we will discuss the success of four such stocks. These are Pilgrim's Pride PPC, Exelixis EXEL, Synchrony Financial SYF and United Airlines UAL.
The GARP theory enables strategic mingling of growth and value-investing principles, which gives us a hybrid strategy by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid sustainable growth potential (Investopedia).
GARP investing gives priority to one of the popular value metrics — the price/earnings growth (PEG) ratio. Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.
The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate
It relates stocks’ P/E ratio with their future earnings growth rates.
While P/E alone gives an idea of stocks that are trading at a discount, PEG, while adding the growth element to it, helps identify stocks with solid future potential.
A lower PEG ratio, preferably less than 1, is always better for GARP investors.
Say for example, if a stock's P/E ratio is 10 and the expected long-term growth rate is 15%, the company's PEG will come down to 0.66, a ratio indicating both undervaluation and future growth potential.
Unfortunately, this ratio is often neglected due to investors' limitations in calculating the future earnings growth rate of a stock.
There are some drawbacks to using the PEG ratio though. It does not consider the very common situation of changing growth rates, such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate over the long term.
Hence, PEG-based investing can be even more rewarding if some other relevant parameters are also taken into consideration.
Here are the screening criteria for a winning strategy:
PEG Ratio less than X Industry Median
P/E Ratio (using F1) less than X Industry Median (For more accurate valuation purpose)
Zacks Rank of 1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1 or #2 have a proven history of success.)
Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity.)
Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stock is easily tradable.
Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: Upward estimate revisions add to the optimism, suggesting further bullishness.
Value Score of less than or equal to B: Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential.
Here are four out of the 10 stocks that qualified the screening:
Pilgrim's Pride: This Greeley, CO-based company is engaged in the processing, production, marketing and distribution of frozen, fresh as well as value-added chicken products. Pilgrim’s Pride has been driving growth through strategic portfolio diversification, focusing on branded offerings and key customer partnerships. This approach helps the company refine its product mix and gain competitive advantages.
The stock can be an impressive value investment pick with its Zacks Rank #1 and a Value Score of A. Apart from a discounted PEG and P/E, the stock also has an impressive long-term expected earnings growth rate of 48.2%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Exelixis: Alameda, CA-based Exelixis is an oncology-focused biotechnology company that primarily focuses on the discovery, development and commercialization of new drugs for the treatment of difficult-to-treat cancers. Exelixis’ lead drug, Cabometyx, continues to be the leading tyrosine kinase inhibitor for the treatment of renal cell carcinoma.
The stock can also be an impressive investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, the stock also has a solid long-term expected growth rate of 27.4%.
$Synchrony Financial(SYF-B)$: As one of the nation’s premier consumer financial services companies, Synchrony Financial offers a wide range of credit products through a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and health and wellness providers.
Apart from a discounted PEG and P/E, the stock has a Value Score of A and holds a Zacks Rank #2. The stock also has a 12.8% earnings growth rate for the next five years.
United Airlines: Based in Chicago, this is the holding company for both United Airlines and Continental Airlines. United Airlines transports people and cargo not only throughout North America but also to destinations in Asia, Europe, the Middle East and Latin America.
The stock can be an impressive value investment pick with its Zacks Rank #1 and a Value Score of A. Apart from a discounted PEG and P/E, the stock also has an impressive long-term expected earnings growth rate of 11.7%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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.
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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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United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
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Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
Synchrony Financial (SYF) : Free Stock Analysis Report
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