Scoop Up These 4 GARP Stocks to Receive Handsome Returns

If you are looking for a profitable portfolio of stocks offering the best of value and growth investing, try the growth at a reasonable price or GARP strategy.

The strategy helps investors gain exposure to undervalued stocks with impressive prospects. Unlike a blend strategy, a portfolio that uses GARP investing is expected to include stocks that offer the best of value and growth investing. KLA KLAC, ASML Holding ASML, GE Aerospace GE and Howmet Aerospace HWM are some GARP stocks that hold promise.

GARP Metrics: Mix of Growth & Value Metrics

The GARP strategy seeks to utilize the best features of value and growth investing. Investors adopting the GARP approach prefer buying stocks priced below the market or any reasonable target determined by fundamental analysis. These stocks also have solid prospects in terms of cash flow, revenues, earnings per share (EPS) and so on.

Growth Metrics

A strong earnings growth history and impressive earnings prospects are the main concepts that GARP investors borrow from the growth investing strategy. However, instead of super-normal growth rates, pursuing stocks with a more stable and reasonable growth rate is a tactic of GARP investors. Hence, growth rates between 10% and 20% are considered ideal under the GARP strategy.

Another metric that growth and GARP investors consider is the return on equity (ROE). GARP investors look for a strong and higher ROE than the industry average to identify superior stocks. Stocks with positive cash flows find precedence under the GARP plan.

Value Metrics

GARP investing prioritizes the popular value metrics — the price-to-earnings (P/E) and price-to-book (P/B) ratios. Though this investing style picks stocks with higher P/E ratios than value investors, it avoids companies with extremely high P/E ratios.

Using the GARP principle, we ran a screen to identify stocks that should offer solid returns in the near term.

Screening Parameters

Along with the criteria discussed in the above section, we have considered a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Last 5-year EPS & projected 3-5-year EPS growth rates between 10% and 25% (Strong EPS growth history and prospects ensure improving business.)

ROE (over the past 12 months) greater than the industry average (Higher ROE than the industry average indicates superior stocks.)

P/E and P/B ratios less than the M-industry average (P/E and P/B ratios less than that of the industry indicate that the stocks are undervalued.)

Here are four stocks from the seven that made it through the screening process:

KLA is an original equipment manufacturer (OEM) of process diagnostics and control (PDC) equipment and yield management solutions required for the fabrication of semiconductor integrated circuits (ICs) or chips. The company has a comprehensive portfolio of products addressing each major PDC subsegment—photomask (reticle) inspection, wafer inspection/defect review and metrology.

KLAC benefits from strong demand in leading-edge logic, high-bandwidth memory, and advanced packaging, which are driving growth in the semiconductor industry. Advanced packaging is expected to exceed $800 million in 2025. Its robust portfolio and leadership in process control systems enable customers to manage increasing design complexity. The services business also continues to perform well. KLAC is well-positioned to capitalize on AI advancements, with AI driving demand for higher-value wafer processing and more complex designs.

This Zacks Rank #2 (Buy) stock has gained 10.2% in the year-to-date period. It has a trailing four-quarter earnings surprise of 5.81%, on average. The Zacks Consensus Estimate for KLAC’s fiscal 2025 earnings has moved north by 7.3% to $8.48 per share over the past 30 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. 

ASML Holding is a world leader in the manufacture of advanced technology systems for the semiconductor industry. The company offers an integrated portfolio for manufacturing complex integrated circuits. 

ASML Holding has a clear advantage in the chip equipment market. It is the only company capable of producing extreme ultraviolet (EUV) lithography machines at scale. These machines are needed to make chips at 5nm, 3nm, and soon 2nm levels — key to powering AI processors, mobile devices and data centers. The company is already rolling out its next-generation High-NA EUV machines, which will be used for even smaller chips. As demand for faster and more efficient chips rises, especially with the growth of AI, ASML Holding stands to benefit. Its machines are a necessary part of the chip supply chain, and its customers, including TSMC, Intel and Samsung, will rely on ASML’s technology for years to come.

This Zacks Rank #2 stock has increased 1.1% in the year-to-date period. It has a trailing four-quarter earnings surprise of 6.77%, on average. The Zacks Consensus Estimate for ASML’s 2025 earnings has moved north by 5% to $5.83 per share over the past 30 days.

GE Aerospace is a leading designer, developer and producer of jet engines, components and integrated systems for military, commercial and business aircraft. The company is well-known for its aero-derivative gas turbines for marine applications.

GE Aerospace has been witnessing strength in its businesses, driven by robust demand for commercial engines, propulsion and additive technologies. Rising U.S. & international defense budgets, geopolitical tensions, positive airline & airframer dynamics and robust demand for commercial air travel augur well for the company. Its portfolio-reshaping actions are likely to unlock values for its shareholders. The company raised its dividend by 28.6% to 36 cents per share in February 2025.

This Zacks Rank #2 stock has surged 25.9% in the year-to-date period. It has a trailing four-quarter earnings surprise of 17.97%, on average. The Zacks Consensus Estimate for GE’s 2025 earnings has moved north by 4.4% to $1.42 per share over the past 30 days.

Howmet Aerospace provides engineered solutions for customers in the transportation and aerospace (both defense and commercial) industries. Notably, it offers forged wheels for commercial use in the transportation industry. It also provides aerospace fastening systems, components used in jet engines and structural parts made of titanium used in defense and aerospace applications.

Howmet is benefiting from solid momentum in the commercial aerospace market, driven by robust build rates and wide-body aircraft recovery. The company is also witnessing strength in its defense aerospace business on the back of rising U.S. & international defense budgets. Robust orders for engine spares for the F-35 program, spares and new builds for legacy fighters augur well. Given the strength in most of its served markets, Howmet has built a sound liquidity position that supports its shareholder-friendly policies.

This Zacks Rank #2 stock has surged 43.7% in the year-to-date period. It has a trailing four-quarter earnings surprise of 8.84%, on average. The Zacks Consensus Estimate for HWM’s 2025 earnings has moved north by 6.3% to 85 cents per share over the past 30 days.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are available at: https://www.zacks.com/performance.

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