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. ResMed (RMD – Free Report) , Raymond James Financial (RJF – Free Report) and KBR (KBR – Free Report) are some GARP stocks that hold promise.
GARP Metrics — Mix of Growth & Value Metrics
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 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. 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.
Screening Parameters
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 three stocks 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.
ResMed holds a major position as a designer, manufacturer, as well as a distributor in the worldwide market for generators, masks and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders.
The company benefits from its robust Mask business, where resupply programs are powered by a digital health ecosystem. The company continues to see strength in the global supply of its cloud-connected platforms, such as AirSense10 and AirSense11. The strong uptake of the myAir app is likely to drive higher adherence to therapy in patients. The company’s continuous efforts to invest and expand in the global market look encouraging. We expect its revenues to witness a CAGR of 6.3% during fiscal 2025-2027.
ResMed has gained 20.6% in the past six-month period. It has a trailing four-quarter earnings surprise of 6.41%, on average. The Zacks Consensus Estimate for RMD’s fiscal 2025 earnings has moved north by 0.8% to $9.35 per share over the past 30 days.
Raymond James Financial provides financial services mainly in the United States and Canada. Strategic acquisitions, which enhance its 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 6.9% by fiscal 2026. 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 PCG segment remains one of the key contributors to revenue growth. Net revenues in the segment reflected a compound annual growth rate (CAGR) of 15.9% over the last three fiscal years ended 2023. The uptrend continued during the first nine months of fiscal 2024.
Raymond James Financial has gained 28.4% in the past six months. 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 0.8% to $10.92 per share over the past 30 days.
KBR, Inc. is a global engineering, construction and services firm supporting the market segments of global energy and international government services. The company has customers in more than 80 countries and operations in more than 30 countries.
KBR is benefiting from its diversified service portfolio, which includes the Government Solutions (GS) segment and the Sustainable Technology Solutions (STS) unit. The GS segment has seen steady growth, supported by increasing defense budgets and demand for advanced technologies, while the STS unit has gained from higher activity in energy transition and technology-driven projects. Strategic acquisitions and alliances have also strengthened the company’s market position across key sectors.
KBR has lost 10.1% in the past six months. It has a trailing four-quarter earnings surprise of 4.43%, on average. The Zacks Consensus Estimate for RJF’s 2024 earnings has remained steady at $3.27 per share over the past 30 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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