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Growth at a reasonable price or GARP is an excellent strategy to earn quick profits out of investments. The GARP approach leads to identification of stocks that are priced below the market or any reasonable target determined by fundamental analysis.

Further, the strategy helps investors in gaining exposure to stocks that have impressive prospects and are trading at a discount. GARP stocks also have solid prospects in terms of cash flow, revenues, earnings per share (EPS) and so on.

That means a portfolio created on the basis of GARP strategy is expected to have stocks that offer the best of both value and growth investing.

GARP Metrics – Mix of Growth & Value Metrics

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 will prefer to buy stocks that are priced below the market or any reasonable target determined by fundamental analysis. These stocks also have solid prospects in 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 also a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under the GARP strategy.

Another growth metric that is considered by both growth and GARP investors is return on equity (ROE). GARP investors look for strong and higher ROE compared to the industry average to identify superior stocks. Moreover, stocks with positive cash flow find precedence under the GARP plan.

Value Metrics

GARP investing gives priority to one of the popular value metrics – price-to-earnings (P/E) 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. Moreover, the price-to-book value (P/B) ratio is also considered.

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 favorable 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 compared to the industry average indicates superior stocks.)

P/E and P/B ratios less than M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)

Here are five of the nine stocks that made it through the screen:

Gartner, Inc. (IT - Free Report) is a leading information technology research and advisory firm, which offers rich domain expertise and technology-related insights necessary for informed decision-making process. The company sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 78.68%, on average.

East West Bancorp, Inc. (EWBC - Free Report) serves as a financial bridge between the United States and Greater China by providing various personal and commercial banking services to small and medium-sized businesses, business executives, professionals, and other individuals. The company sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 11.97%, on average.

Landstar System, Inc. (LSTR - Free Report) is an asset-light provider of integrated transportation management solutions. The company sports a Zacks Rank #1 currently. It has a trailing four-quarter earnings surprise of 22.1%, on average.

HCA Healthcare, Inc. (HCA - Free Report) is the largest non-governmental operator of hospitals and related healthcare entities in the United States. The company carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 67.08%, on average.

KLA Corporation (KLAC - Free Report) is an original equipment manufacturer of process diagnostics and control equipment and yield management solutions required for the fabrication of semiconductor integrated circuits or chips. The company has a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 8.87%, on average.