With the market whipsawing back and forth and volatility returning to the forefront, investors these days are facing a quandary. While the global economy, as a hole, seems to be getting better, problems from Europe have added unintended increased risk to portfolios. Unlike 2009, when almost all assets were at super bargain levels, today it's becoming much harder to determine what makes a good buy versus a poor one. Luckily, investors do have an investment style that attempts to bridge the value and growth gaps.

IN PICTURES:
6 Simple Steps To $1 Million

John Irving's Stock Play
Aside from the title of a John Irving novel and subsequent movie, GARP or growth at a reasonable price investing was first popularized by famed manager Peter Lynch. The investing style in efforts to form the growth/value blend looks for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding stocks that have very high valuations (value investing). While not as rigid as some forms of investing, GARP followers usually point to one metric in their quest to find stocks. The price to growth ratio or PEG is a measure of a company's P/E ratio and its expected earnings growth rate. For GARP investors, lower PEG is better. (Learn more about PEG, see: Move Over P/E, Make Way For The PEG.)

As the market swooned upwards nearly 67% in 2009, GARP investors underperformed slightly. Most managers following the style shun high debt loads, but with many high debt companies priced at ultra cheap levels, they rose more than conservative growth-value picks. If the market surges upwards intensely again, GARP may flounder. Traditionally, GARP stocks, such as Microsoft (Nasdaq: MSFT) aren't particularly exciting, but represent growing, cash flow heavy businesses. But, if we float sideways for awhile, which most analysts are predicting, GARP could be a superstar strategy.

The Portfolio Plays
One of the easiest ways for investors wanting to implement a GARP strategy for their portfolios is to look at both value and growth exchange traded funds and see what stocks intersect. The iShares Russell 1000 Growth Index Fund (NYSE: IWF) and iShares Russell 1000 Value Index Fund (NYSE: IWD) both have many firms that are included in each style ETF. For example both funds include investment in Procter & Gamble (NYSE: PG). Investors can then look at the PEG ratios of the overlapping firms to determine great GARP targets. Here are a few picks.

Shares of Walt Disney (NYSE: DIS) currently trade for less than they did in 1998, yet the company is earning far more revenue than it did back then. The company is also poised to benefit from the growth of content for mobile devices. Analysts predict that we'll be watching more television and reading more from our smartphones in the upcoming years ahead. This growth is a boon for content providers such as Disney as it has many avenues it can tap including its investments in ESPN and ABC. Shares of the company trade at a PEG ratio of 1.73.

Trading at a PEG of nearly one, consulting firm Accenture (NYSE: ACN) represents a classic GARP play. As the economy rebounds, more companies will use Accenture's services adding to its revenues. Accenture's main asset is its employees and it has very little CAPEX spending. The margins for its work can continue to supplement its $4.11 billion in cash.

Knight Capital Group (NYSE: KCG) represents a deep GARP play with a PEG of 0.78. The financial firm serves as the market maker for 19,000 different issues. The firm can seen as direct play on increased volatility as this increase will lead to more trades. Knight currently handles millions of individual trades each day. Shares of the stock were punished during the recent crisis, but still trade at a cheap P/E of 9.96.

Bottom Line
As the markets continue to gyrate, individual stock picking is becoming more important with each trade. In an attempt to bridge growth and value style investing, GARP may be just what a portfolio needs in these sideways markets. Stocks like Garmin (Nasdaq: GRMN) with its PEG of 1.3 and the proceeding picks are good examples of growth at a reasonable price for a portfolio. (Learn more about GARP, read Stock-Picking Strategies: GARP Investing.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  2. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Dividend

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
  6. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  7. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  10. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Investment Grd Fl Rt

    Learn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!