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. Bloomin’ Brands BLMN, W.W. Grainger GWW, Lincoln Electric LECO and Texas Roadhouse TXRH 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. Moreover, 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 stocks that made it through the screen:

Bloomin’ Brands is a casual dining restaurant company with a portfolio of differentiated restaurant concepts such as Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. The company currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bloomin’ Brands has gained 65.1% over a year. The Zacks Consensus Estimate for BLMN’s 2023 earnings has remained stable at $2.93 per share in the past 30 days.

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 carries a Zacks Rank #2.

W.W. Grainger has gained 58.5% over a year. The Zacks Consensus Estimate for W.W. Grainger’s 2023 earnings has moved 0.1% north to $35.86 per share over the past 30 days.

Lincoln Electric is a full-line manufacturer and reseller of welding and cutting products ranging from welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumables and fluxes to regulators and torches used in cutting. The company currently carries a Zacks Rank #2.

Lincoln Electric has gained 74.5% over a year. The Zacks Consensus Estimate for LECO’s 2023 earnings has moved north by 0.4% to $9.03 per share in the past 30 days.

Texas Roadhouse is a full-service, casual dining restaurant chain, offering an assortment of specially seasoned and aged steaks on the premises and cooked to order over open grills. The company currently carries a Zacks Rank #2.

Texas Roadhouse has gained 46.7% over a year. The Zacks Consensus Estimate for TXRH’s 2023 earnings has moved 0.2% north to $4.68 per share in the past 30 days.

Lincoln Electric Holdings, Inc. (LECO): Free Stock Analysis Report

Texas Roadhouse, Inc. (TXRH): Free Stock Analysis Report

W.W. Grainger, Inc. (GWW): Free Stock Analysis Report

Bloomin’ Brands, Inc. (BLMN): Free Stock Analysis Report

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