If you are looking for a profitable portfolio of stocks offering the best of value and growth investing, try the growth at a reasonable price or GARP strategy.
The strategy helps investors gain exposure to undervalued stocks with impressive prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of value and growth investing. OUTFRONT Media OUT, Cencora, Inc. COR, Raymond James Financial RJF and ResMed RMD are some GARP stocks that hold promise.
GARP Metrics — Mix of Growth & Value Metrics
The GARP strategy seeks to offer an ideal investment by utilizing the best features of value and growth investing. Investors adopting the GARP approach prefer buying stocks 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
A strong earnings growth history and impressive earnings prospects are the main concepts 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 a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under the GARP strategy.
Another metric that growth and GARP investors consider is the return on equity (ROE). GARP investors look for a strong and higher ROE than the industry average to identify superior stocks. Stocks with positive cash flows find precedence under the GARP plan.
Value Metrics
GARP investing prioritizes the popular value metrics — the price-to-earnings (P/E) and price-to-book (P/B) ratios. Though this investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios.
Using the GARP principle, we ran 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 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 than the industry average indicates superior stocks.)
P/E and P/B ratios less than the M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)
Here are four of the eight stocks that made it through the screening process:
OUTFRONT Media is a leading provider of out-of-home (“OOH”) advertisement space in key markets throughout the United States. With billboard and transit displays, the company provides advertising structures and sites to diverse industries across the largest markets in the United States.
The REIT enjoys a diversified portfolio of advertising sites, geography and industry-wise, in some of the key markets of the United States. Its efforts to expand the OOH advertising platform bode well for long-term growth. Strategic investments in the digital billboard portfolio and ongoing efforts to convert its business from traditional static billboard advertising to digital displays support its digital revenue growth.
This Zacks Rank #1 (Strong Buy) stock has gained 19.4% in the past year. It has a trailing four-quarter earnings surprise of 3.83%, on average. The Zacks Consensus Estimate for OUT’s 2025 earnings has remained steady at $1.86 per share over the past 30 days. You can see the complete list of today's Zacks #1 Rank stocks here.
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.
This Zacks Rank #2 (Buy) company 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 7.6% 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 0.4% to $14.99 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 seeing 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. 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.
This Zacks Rank #2 stock has gained 41.3% 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 1.3% to $10.99 per share over the past 30 days.
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.
This Zacks Rank #2 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 theglobal marketlook encouraging. We expect its revenues to witness a CAGR of 6.3% during fiscal 2025-2027.
ResMed has gained 32.4% in the past year. 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 0.2% to $9.36 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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OUTFRONT Media Inc. (OUT) : Free Stock Analysis Report
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