There are some investors who believe growth is important, but do not want to pay too much for it. As a result, they are looking for stocks in which growth and value work together, laying a strong foundation for an investment they hope will be successful.
Five common fundamental indicators that growth at a reasonable price, or GARP, investors refer to when assessing a stock's prospects are:
Trailing 12-month and forward PEG ratios less than or equal to 2.
An average annual net income margin growth rate of more than 5% over the past five years.
Annual profit is projected to increase by more than 10% every year for the next five years.
A positive trend in annual operating income over the past five years.
A price-earnings ratio of less than or equal to 25.
Thus, GARP investors may want to consider the following stocks since they meet the above criteria.
JELD-WEN
The first stock GARP investors may want to consider is JELD-WEN Holding Inc. (NYSE:JELD), a Charlotte, North Carolina-based designer and manufacturer of doors, windows and walls. Its products are used in new buildings for single and multi-family houses and nonresidential buildings.
The stock closed at $10.03 per share on Friday for a market cap of $845.12 million and a price-earnings ratio of 7.32. The share price has dropped 59.88% over the past year, fluctuating within a 52-week range of $9.64 to $28.29.
The trailing 12-month PEG ratio was 1.56 and the forward PEG ratio was 0.25 based on the past five-year Ebitda growth rate of 4.70% and the projected five-year earnings per share growth rate of 29.30%.
The annual net income margin increased 359.43% per year over the past five years (fiscal 2017 through fiscal 2021), while annual operating income grew 2.81% per year over the same period. For fiscal 2021 (which ended Dec. 30), the annual net profit margin was 3.54%, while the annual operating income was $271.99 million.
On Wall Street, the stock has three strong buy, seven buy and three hold recommendation ratings. The average target price is $16.08 per share.
Worthington Industries
The second stock GARP investors may want to consider is Worthington Industries Inc. (NYSE:WOR), a Columbus, Ohio-based manufacturer of steel products for various industries, including automotive, aerospace, agriculture and construction. The company also offers consumer-branded products such as tools and products for outdoor living and celebrations. In addition to these products, the company sells several specialty products to gas producers and traders, as well as on-board fueling systems and gas containment solutions and related services for the storage, transportation and distribution of industrial gases.
The stock closed at $51.25 per share on Friday for a market cap of $2.55 billion and a price-earnings ratio of 6.91. The share price has fallen by 3.74% over the past year, fluctuating within a 52-week range of $39.13 to $62.82.
The trailing 12-month PEG ratio was 0.32 and the forward PEG ratio was 0.16 based on the past five-year Ebitda growth rate of 21.50% and the projected five-year earnings per share growth rate of 41.50%.
The annual net income margin increased 163.61% per year over the past five years (fiscal 2018 through fiscal 2022), while annual operating income grew 28.30% per year over the same period. For fiscal 2022 (ended May 31), the annual net income margin was about 7.24%, while the annual operating income was $315.25 million.
On Wall Street, the stock has three hold recommendation ratings. The average target price is $52.50 per share.
This article first appeared on GuruFocus.
If Americans could conjure an ideal congressional candidate, that person would be an educated, healthy, millennial with some form of business experience, new polling from Insider/Morning Consult indicates.
The survey is part of Insider's "Red, White, and Gray" project, which explores the ongoing gerontocracy in the US and its ramifications for a younger generation. The poll from early September inquired about what Americans value when deciding "which candidate to vote for in an election."
The most essential aspect for a candidate, according to polling, was "the candidate's health," with 85% of respondents noting that it was either "very" or "somewhat important" to them.
The issue most recently surfaced after Democratic US Senate candidate John Fetterman had a stroke in May 2022, causing him to temporarily exit the campaign trail as he recovered. The campaign of his Republican opponent, former television host Mehmet Oz, has been quick to lambast Fetterman for his health issues.
"If John Fetterman had ever eaten a vegetable in his life, then maybe he wouldn't have had a major stroke and wouldn't be in the position of having to lie about it constantly," said Rachel Tripp, Oz's senior communications advisor, in August leading to backlash from the medical community.
Another key attribute for a candidate was education, with nearly eight in 10 adult respondents saying it's either "somewhat" or "very" important. The vast majority of Congress — 94% of House representatives and 100% of senators — possess a four-year college degree and many members have some form of graduate degree as well.
In addition to education, six-in-10 respondents noted that it would be a "good thing" if more "Americans with business experience" were represented in Congress.
Congress has typically had a fair share of members with a background that included some form of business experience — over half of the representatives from the 114th Congress (who were in office from January 2015 to January 2017) had some form of "business or banking experience," according to the Brookings Institution.
Some members of Congress still own businesses as they continue to serve, such as Rep. David Trone of "Total Wine & More" and Rep. Ted Budd of "ProShots," a gun store and shooting range.
The poll found that the age of candidates matters quite a lot, with nearly seven in 10 adult respondents saying it was "very" or "somewhat important" to them.
Accordingly, respondents were asked if it would be a "good thing for the country, a bad thing, or not have an impact at all" if more members of each specific generation were represented in Congress. Among the responses, millennials polled the highest, with four in 10 adult respondents saying it would a good thing if more millennials were represented.
According to the Pew Research Center, there are only 32 millennials currently serving in Congress, making them the second-least represented age group outside of Gen Z, which has zero representation in Congress.
The survey also indicated that having "enough background and experience to serve in political office" may not matter — nearly three-fourths of adult respondents said political experience doesn't matter as long as the candidate "is in touch with the needs and wishes of voters."
The Insider/Morning Consult survey was conducted from September 8 through September 10, with 2,210 respondents and a margin of error of +/- 2 percentage points.
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If you are looking for a profitable portfolio of stocks that will offer the best value and growth investing, try the growth at a reasonable price or GARP strategy.
The strategy helps investors gain exposure to stocks that are undervalued and have impressive growth prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of both value and growth investing. W.W. Grainger GWW, Carlisle Companies CSL, CDW Corporation CDW and Automatic Data Processing ADP are some GARP stocks that hold promise.
The GARP strategy seeks to offer an ideal investment by utilizing the best features of both 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
Both 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 growth metric considered by both 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 positive cash flows find precedence under the GARP plan.
Value Metrics
GARP investing gives priority to the popular value metrics — the price-to-earnings (P/E) ratio and the price-to-book (P/B) ratio. Though this investing style picks stocks with higher P/E ratios compared to value investors, it avoids companies with extremely high P/E ratios.
Using the GARP principle, we have run a screen to identify stocks that should offer solid returns in the near term.
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 stocks that made it through the screen:
W.W. Grainger is a broad line, business-to-business distributor of maintenance, repair, and operating products and services, primarily in North America, Japan and the U.K. The company currently sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.
W.W. Grainger has a trailing four-quarter earnings surprise of 7.95%, on average. The Zacks Consensus Estimate for W.W. Grainger’s 2022 earnings has moved 6.6% north to $28.07 per share over the past 60 days.
Carlisle is engaged in designing, manufacturing and selling a wide range of roofing and waterproofing products, engineered products, and finishing equipment. CSL currently carries a Zacks Rank #2.
Carlisle has a trailing four-quarter earnings surprise of 27.99%, on average. The Zacks Consensus Estimate for CSL's 2022 earnings has moved 14.6% north to $20.24 per share over the past 60 days.
CDW is a leading provider of integrated information technology (IT) solutions to small, medium and large businesses; government; education; and healthcare customers. The company currently carries a Zacks Rank #2.
CDW has a trailing four-quarter earnings surprise of 6.78%, on average. The Zacks Consensus Estimate for 2022 earnings has moved 0.8% north to $9.66 per share over the past 60 days.
Automatic Data Processing provides cloud-based Human Capital Management technology solutions, including payroll, talent management, human resources and benefits administration, and time and attendance management. The company currently carries a Zacks Rank #2.
Automatic Data Processing has a trailing four-quarter earnings surprise of 5.02%, on average. The Zacks Consensus Estimate for fiscal 2023 earnings has moved 3.5% north to $8.05 per share over the past 60 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.
