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) , Booz Allen Hamilton (BAH) , CrediCorp (BAP) and American Express (AXP) 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 four stocks that made it through the screen:

ResMed is a designer, manufacturer and distributor in the worldwide market for generators, masks and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders. The company currently sports a Zacks Rank #1.

ResMed has gained 23.2% on a year-to-date basis. It has a trailing four-quarter earnings surprise of 2.8% on average. The Zacks Consensus Estimate for RMD’s fiscal 2024 earnings has moved 0.8% north to $7.70 per share over the past 30 days.

Booz Allen Hamilton is a provider of management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber expertise to the United States and international governments, corporations, and not-for-profit organizations. The company currently carries a Zacks Rank #2.

Booz Allen Hamilton has gained 19% year to date. It has a trailing four-quarter earnings surprise of 12.5%, on average. The Zacks Consensus Estimate for fiscal 2025 earnings has moved 3.1% north to $6.05 per share over the past 30 days.

CrediCorp is a limited liability company that acts as a holding company, coordinates the policy and administration of its subsidiaries, and engages in investing activities. BAP currently carries a Zacks Rank #2.

CrediCorp has gained 29.7% year to date. It delivered a trailing four-quarter earnings surprise of 0.99%, on average. The Zacks Consensus Estimate for BAP’s 2024 earnings has moved 0.3% north to $18.64 per share over the past 30 days.

American Express is a diversified financial services company offering charge and credit payment card products, and travel-related services worldwide. The company currently carries a Zacks Rank #2.

American Express has gained 25% year to date. It delivered a trailing four-quarter earnings surprise of 6.4%, on average. The Zacks Consensus Estimate for AXP’s 2024 earnings has been stable at $13.01 per share in the past 30 days.

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.

— Shilpa Mete

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Source: Zacks