Finding stocks with growth at a reasonable price in this tough market environment
It’s not easy to find growth in this macroeconomic environment. That has many strategists turning toward a “growth at a reasonable price,” or GARP, strategy. In essence, it combines both growth and value investing. While some of the typical growth companies tend to still have unreasonable price-to-earnings ratios, GARP companies have consistent earnings and sales growth, along with reasonable valuations. “In this slowing-growth/recessionary environment we continue to favor GARP-y names that will be able to sustain decent earnings growth,” Wells Fargo analyst Christopher Harvey wrote in a note on Friday. What follows are companies that fit the GARP criteria. To find the names, CNBC Pro used FactSet data as of Friday to look for stocks with estimated EPS growth this year and next year that is greater than the market average of 8% and a cheaper forward P/E than the current market forward P/E of 17.5. More than 50% of the analysts rate the stocks a buy and the names have at least 10% upside based on the consensus price target. Signature Bank is the most popular among analysts, with 100% of those covering the stock rating it a buy. It’s down more than 40% for the year, but has an upside of 40.6%, according to the median analyst price target. Its EPS growth is estimated to be 45.9% this year and 11.8% next year. Schlumberger is also favored by Wall Street, with 82.1% of the analysts covering the stock rating it a buy. Its EPS growth this year is forecast to be 58.2%, while next year it is expected to be 38.2%. The oilfield services is already up more than 20% year to date, thanks to the rise in oil prices, and has an upside of 34%, according to the median analyst price target. The name with the biggest upside is Halliburton , with the median analyst price target putting anticipated gains at 46.1%. Its EPS growth is estimated to be 85.7% this year and 39.1% next year. Tapestry , which is down more than 9% year to date, has 25.4% upside, according to the median analyst price target. Its EPS is expected to grow 10.8% this year and 12.3% next year. The company owns luxury fashion brands Coach and Kate Spade. “We believe TPR will continue to benefit from its pricing power in FY23,” wrote Guggenheim analyst Robert Drbul in an Aug. 18 report. He rates the company a buy. Albemarle is expected to see a huge EPS gain of 400.9% this year and 9.6% next year. Some 52% of analysts have a rating of buy on the stock, which has 11.1% upside to the median analyst price target. Argus analyst Bill Selesky last week raised his price target on the lithium provider to $366 from $333. “We believe that the company will continue to benefit from the accelerating production of electric vehicles (EVs) based on its low-cost position and global scale,” he wrote.