GARP Strategy Unlocks Value: Finding Growth Stocks at Reasonable Prices

When navigating equity markets amid volatility, investors face a perpetual dilemma: pursue deep value at distressed prices or chase growth regardless of valuation? The evolution of Warren Buffett’s investment philosophy—from strict value investing toward a more balanced approach—offers compelling insights. This hybrid strategy, known as GARP (Growth at a Reasonable Price), combines the discipline of value analysis with the upside potential of growth investing, creating what many consider an optimal framework for building wealth across market cycles.

The success of GARP investing lies in its pragmatic middle ground. Rather than hunting for severely underpriced assets or betting on explosive expansion without regard to valuation, GARP investors seek companies that are modestly undervalued while demonstrating genuine, sustainable business expansion. Recent market performance has validated this thesis, with numerous equities employing this balanced approach delivering superior returns compared to pure-play alternatives in either camp.

The Foundation of GARP: Beyond Traditional P/E Metrics

Standard valuation metrics like price-to-earnings ratios provide only a partial picture. They reveal whether a stock trades at a discount to peers, but they ignore a crucial dimension: future growth potential. The Price-to-Earnings Growth (PEG) ratio addresses this gap by dividing the P/E ratio by the company’s expected earnings growth rate.

The mathematical formula is straightforward: PEG Ratio = (Price/Earnings) ÷ Earnings Growth Rate

This elegant metric transforms raw valuation into growth-adjusted valuation. A company trading at a P/E of 10 with an anticipated long-term growth rate of 15% would have a PEG of 0.66—signaling both undervaluation and promising expansion ahead. GARP practitioners typically target PEG ratios below 1.0, preferably trending toward 0.60-0.80, as a signal of attractive risk-reward positioning.

Yet PEG analysis has limitations. It assumes linear growth trajectories, when reality often features steep initial expansion followed by more moderate long-term advancement. Consequently, sophisticated GARP investors supplement PEG screening with additional quantitative filters to ensure they’re capturing genuinely compelling opportunities rather than statistical anomalies.

Screening Criteria for Identifying Tomorrow’s Winners

Professional investors employ a rigorous multi-factor screening approach to isolate GARP candidates:

• PEG Ratio: Must trade below industry median, signaling growth-adjusted undervaluation
• Forward P/E Ratio: Should remain below industry median for additional confirmation of reasonable valuation
• Analyst Rating: Zacks Rank #1 (Strong Buy) or #2 (Buy) stocks have demonstrated historical outperformance across market regimes
• Market Capitalization: Minimum $1 billion ensures adequate trading liquidity and institutional credibility
• Trading Volume: Average 20-day volume exceeding 50,000 shares guarantees executability without market-impact friction
• Estimate Revisions: Four-week earnings revision momentum exceeding 5% suggests improving business trajectory and analyst confidence
• Value Characterization: Value Score of A or B combined with favorable Zacks ratings identifies stocks with optimal upside asymmetry

Industrial Leaders Meeting GARP Requirements: From Zinc Oxide to Pharma

Nexa Resources stands as a compelling GARP candidate in the industrial materials space. This global mining and smelting enterprise operates polymetallic mines across Peru and Brazil, producing zinc, zinc oxide paste, zamac, and other valuable derivatives. With three zinc smelters strategically positioned in the region, Nexa commands significant production capacity and vertical integration. The company carries a Zacks Rank #2 with an A-rated Value Score and boasts an anticipated long-term growth rate of 35.6%—a trajectory that justifies its valuation multiple when assessed through the PEG lens.

Harmony Biosciences represents the pharmaceutical sector’s application of GARP principles. This American drug developer specializes in rare neurological conditions, marketing WAKIX for narcolepsy while advancing pipeline candidates targeting Prader-Willi syndrome, myotonic dystrophy, Fragile X syndrome, and related neurodevelopmental disorders. With a Zacks Rank #1 designation and A-rated Value Score, Harmony’s expected five-year expansion rate of 27.1% reflects both commercial execution and clinical validation.

Commercial Metals brings industrial diversification to the GARP portfolio. Based in Irving, Texas, this manufacturer operates an extensive network of electric-arc furnace mills, rerolling facilities, fabrication plants, and recycling operations spanning the United States and Poland. The company’s Zacks Rank #2 and A-rated Value Score complement an anticipated 25.5% long-term growth trajectory, supported by secular tailwinds in infrastructure development and manufacturing renaissance.

Suzano rounds out the cohort as a Brazilian pulp, paper, and advanced materials producer. Operating across printing papers, tissue, paperboard, and next-generation cellulose applications, Suzano combines commodity exposure with premium product differentiation. Carrying a Zacks Rank #1 and A-rated Value Score, Suzano’s projected 44.1% long-term growth rate—the highest among the quartet—reflects confidence in emerging end-market applications and operational leverage.

Proven Track Records in Hybrid Investing

Zacks Investment Research’s historical analysis demonstrates the power of systematic, disciplined screening. Since 2000, their top-ranked stock-picking strategies have delivered average annual gains of +48.4%, +50.2%, and +56.7%—substantially outpacing the S&P 500’s modest +7.7% annualized return over the same interval.

This differential reflects the tangible benefit of combining growth and value principles rather than pursuing either discipline in isolation. GARP’s middle path captures the compound expansion of growth businesses while buying them at valuations that offer margin of safety—precisely the formula that has powered wealth creation across market cycles.