There are investors who believe growth is very important as long as you do not pay too much for it. Such investors are in search of the union of growth and value in stocks when they screen the market.
Below are the five most-used fundamental indicators that "growth at a reasonable price," aka "GARP" investors, refer to when they assess the outlook of a stock:
- Trailing 12-month and forward PEG ratios less than or equal to 2
- A more than 5% yearly average increase in the trailing 12-month net income margin over the past five years
- Earnings are projected to increase more than 10% every year for the next five years
- A positive trend in trailing 12-month operating income over the past five years.
- A price-earnings ratio less than or equal to 25.
Thus, GARP investors could be interested in the following stocks, as they meet the above criteria.
UnitedHealth Group Inc
The first stock GARP investors could be interested in is UnitedHealth Group Inc (UNH, Financial), a Minnetonka, Minnesota-based diversified healthcare company.
The stock closed at $395.86 per share on Monday for a market cap of $374.21 billion and a price-earnings ratio of 22.50. The trailing 12-month PEG ratio was 1.53 and the forward PEG ratio was 1.78, based on a past five-year Ebitda growth rate of 14.70% and a projected five-year earnings per share growth rate of 12.62%.
The net income margin (6.97% as of the March 2021 quarter) rose by 11% per annum over the past five years, while the operating income ($22.559 billion as of the March 2021 quarter) increased by 14.7% per annum over the same period.
GuruFocus assigned the company a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10.
The share price has grown by 37.28% over the past year, fluctuating in a 52-week range of $273.71 to $401.99.
On Wall Street, as of April, the stock has a median recommendation rating of buy and an average target price of $430.91 per share.
PerkinElmer
The second stock GARP investors could be interested in is PerkinElmer (PKI, Financial), a Waltham, Massachusetts-based provider of products and solutions for clinical diagnostic and life science research organizations worldwide.
The stock closed at $134.98 per share on Monday for a market cap of $15.13 billion and a price-earnings ratio of 20.83. The trailing 12-month PEG ratio was 0.92 and the forward PEG ratio was 1.21, based on a past five-year Ebitda growth rate of 22.70% and a projected five-year EPS growth rate of 17.20%.
The net income margin (28.08% as of the December 2020 quarter) increased by 5.3% per annum over the past five years, while the operating income ($987 million as of the December 2020 quarter) increased by 23.8% per annum.
GuruFocus assigned the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10.
The share price has risen by 52.61% over the past year, fluctuating in a 52-week range of $85.71 to $162.70.
On Wall Street, as of April, the stock has a median recommendation rating of overweight with an average target price of $155.77 per share.
Lithia Motors Inc
The third stock that GARP investors could be interested in is Lithia Motors Inc (LAD, Financial), a Medford, Oregon-based operator of new and used vehicles stores and a provider of connected financial and insurance products.
The stock closed at $387.19 per share on Monday for a market cap of $10.39 billion and a price-earnings ratio of 16.78. The trailing 12-month PEG ratio was 0.76 and the forward PEG ratio was 0.80, based on a past five-year Ebitda growth rate of 22.20% and a projected five-year earnings per share growth rate of 21%.
The net income margin (3.60% as of the March 2021 quarter) grew by 5.6% per annum over the past five years, while the operating income ($832 million as of the March 2020 quarter) increased by 14.9% per annum.
GuruFocus assigned a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10 to the company.
The share price has grown by 244% over the past year, fluctuating in a 52-week range of $93.38 to $417.98.
On Wall Street, as of April, the stock has a median recommendation rating of overweight with an average target price of $426.09 per share.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
- 3 Defensive Stocks for the Value Investor
- A Trio of High Ebitda Margin Ratio Stock Picks
- A Trio of Stocks With a Record of Operating Income Margin Growth
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