4 GARP Stocks to Scoop Up for Maximum Returns

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 regarding cash flow, revenues, earnings per share (EPS) and others.

A portfolio based on the GARP strategy comprises stocks that offer the best value and growth investing. Hubbell HUBB, Caterpillar CAT, A.O. Smith AOS and Motorola Solutions MSI are some GARP stocks that hold promise.

GARP Metrics — Mix of Growth & Value Metrics

The GARP strategy offers ideal investment options by 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 5% 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. Though the investing style picks stocks with higher P/E ratios than value investors, 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 5% and 20% (Strong EPS growth history and prospects ensure improving business.)

ROE (in the past 12 months) greater than the industry average (Higher ROE compared with 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 seven stocks that made it through the screen:

Hubbell designs and manufactures electrical and electronic products such as plugs, receptacles, connectors, data signal processing components, lighting fixtures, and high-voltage test and measurement equipment. The company currently flaunts a Zacks Rank #1.

Hubbell has a trailing four-quarter earnings surprise of 19.9% on average. The Zacks Consensus Estimate for HUBB’s 2023 earnings has moved 10.9% north to $15.32 per share over the past 30 days.

Caterpillar is a global construction and mining equipment manufacturer. It serves infrastructure, construction, mining, oil & gas and transportation sectors. It has more than 4 million products with an extensive dealer network of 165 dealers spanning 191 countries. The company currently sports a Zacks Rank #1.

Caterpillar has a trailing four-quarter earnings surprise of 18.5% on average. The Zacks Consensus Estimate for CAT’s 2023 earnings has moved 6.8% north to $19.05 per share over the past 30 days.

A.O. Smith is one of the leading manufacturers of commercial and residential water heating equipment and water treatment products worldwide. The company carries a Zacks Rank #2.

A.O. Smith has a trailing four-quarter earnings surprise of 10.5% on average. The Zacks Consensus Estimate for AOS’ 2023 earnings has moved 2.6% north to $3.56 per share over the past 30 days.

Motorola Solutions is a leading communications equipment manufacturer with strong market positions in bar code scanning, wireless infrastructure gear, and government communications. The company currently carries a Zacks Rank #2.

Motorola Solutions has a trailing four-quarter earnings surprise of 5.6% on average. The Zacks Consensus Estimate for MSI’s 2023 earnings has been stable at $11.24 per share in the past 30 days.
Caterpillar Inc. (CAT): Free Stock Analysis Report

A. O. Smith Corporation (AOS): Free Stock Analysis Report

Motorola Solutions, Inc. (MSI): Free Stock Analysis Report

Hubbell Inc (HUBB): Free Stock Analysis Report

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