What Is Growth at a Reasonable Price (GARP)?

Growth at a reasonable price (GARP) is an equity investment strategy that seeks to combine tenets of both growth investing and 澳洲幸运5官方开奖结果体彩网:value investing to select individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels while excluding companies that have very high 澳洲幸运5官方开奖结果体彩网:valuations. The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low 澳洲幸运5官方开奖结果体彩网:price/earnings (P/E) multiples in normal market conditions.

Understanding Growth at a Reasonabl📖e Price (GAR๊P)

GARP investing was popularized by legendary Fidelity manager 澳洲幸运5官方开奖结果体彩网:Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the 澳洲幸运5官方开奖结果体彩网:price/earnings growth (PEG) ratio.

The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.

In a 澳洲幸运5官方开奖结果体彩网:bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors but subpar to strict value investors who generally purchase shares at P/Es under broaꦫd market multiples.

GARP Investors vs. Value Investors

Value investors try to buy stocks that are on sale. Value investors look for stocks at bargain prices for a) a larger chance to earn a future profit and b) less risk of losing your money if the stock doesn’t perform well as you had anticipated. This fundamental principle is called the 澳洲幸运5官方开奖结果体彩网:margin of safety.

Value investors also do not buy into the efficient-market hypothesis, which postulates that stock prices already take the full spread of company, industry, and market information into account. Value investors believe that it’s possible to pick overvalued or undervalued stocks relative to their current market price. Value investors may perform a 澳洲幸♏运5官方开奖结果体彩网:discounted cash flows a𒁏nalysis (DCF) to determine a stock’s 澳洲幸运5官方开奖结果体彩网:intrinsic value.

Famous value investors include 澳洲幸运5官方开奖结果体彩网:Warren Buffett, CEO, and chair of Berkshire Hathaway, which grew to become one of the largest publicly traded com🉐p๊anies in the world.

GARP Strategy

One of the most straightforward ways to utilize the GARP strategy is by investing in an 澳洲幸运5官方开奖结果体彩网:index fund that utilizes the s🀅trategy. This removes ha﷽ving to analyze your own stocks and come up with investments that fit the criteria of a GARP investment.

澳洲幸运5官方开奖结果体彩网:Standard and Poor's has created the 澳洲幸运5官方开奖结果体彩网:S&P 500 GARP Index, which is an index that tracks "companies with consistent fundamental growth, reasonable valuation, solid financial strength, and strong earning power."

One fund that tracks the S&P 500 GARP Index is the Invesco S&P 500 GARP ETF (SPGP). It is an 澳洲幸运5官方开奖结果体彩网:exchange traded fund that aims to invest 90% of its assets into the securities that make up the S&P 500 GARP Index.

The fund's largest holdings are in 澳洲幸运5官方开奖结果体彩网:healthcare (29.39%) followed by 澳洲幸运5官方开奖结果体彩网:information technology stocks (21.40%). 澳洲幸运5官方开奖结果体彩网:Financials is the next heavily invested sector at 17.28%. The smallest invested sector is consumer staples at 3.71%. Above that is communication services at 5.61%. Well-known stocks include Meta (formerly Facebook), Adobe, and Cigna. The fund also comes with a low 澳洲幸运5官方开奖结果体彩网:expense ratio of 0.36%, making it an affordable investment choice.