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 are working 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.
ON Semiconductor Corp
The first stock GARP investors may want to consider is ON Semiconductor Corp. (ON, Financial), a Phoenix, Arizona-based manufacturer and seller of semiconductors with operations held worldwide.
The stock closed at $66.01 per share on Monday for a market cap of $28.68 billion and a price-earnings ratio of 20.25. The trailing 12-month PEG ratio was 1.67 and the forward PEG ratio was 0.97, based on the past five-year Ebitda growth rate of 12.10% and the projected five-year earnings per share growth rate of 20.77%.
The annual net income margin increased 40.30% per year over the past five years (fiscal 2017 through fiscal 2021), while annual operating income grew 47.72% per year over the same period. For fiscal 2021 (which ended Dec. 30, 2021), the annual net profit margin was 14.98%, while the annual operating income was $1.362 billion.
The share price has risen 75.61% over the past year, fluctuating within a 52-week range of $34.01 to $71.25.
On Wall Street, the stock has five strong buys, nine buys, six hold recommendation ratings and only one underperform rating. The average target price is $72.76 per share.
United Microelectronics Corp
The second stock GARP investors may want to consider is United Microelectronics Corp. (UMC, Financial), a Taiwanese semiconductor wafer foundry operator with sales primarily in the U.S., Europe, Taiwan and other Asian countries.
The stock closed at $8.88 per share on Monday for a market cap of $22.17 billion and a price-earnings ratio of 10.49. The trailing 12-month PEG ratio was 0.81 and the forward PEG ratio was 0.31, based on the past five-year Ebitda growth rate of 12.90% and the projected five-year earnings per share growth rate of 34.10%.
The annual net income margin increased 61.33% per year over the past five years (fiscal 2017 through fiscal 2021), while annual operating income grew 118.70% per year over the same period. At the end of fiscal 2021 (ended Dec. 30, 2021), the annual net income margin was about 24%, while the annual operating income was $1.851 billion.
The share price has fallen by 4.82% over the past year, fluctuating within a 52-week range of $7.49 to $12.68.
On Wall Street, the stock has one buy and two hold recommendation ratings. The average target price is $9.06 per share.
