Chicago, IL – April 17, 2025 – Stocks in this week’s article are — like StoneCo Ltd. STNE, BGC Group, Inc. BGC, Qifu Technology, Inc. QFIN and Universal Health Services UHS.
4 Discounted PEG Stocks Based on GARP Approach to Smart Investing
In the equity market, investments always need to be prudently hedged to overcome uncertainties and limit losses related to external shocks. A question that often arises is whether one should resort to a value strategy that seeks discounted stocks or opt for growth investing in times of extreme market instability.
The investing track of the Oracle of Omaha over the past few decades and his gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor might give us all the answers.
Several stocks that have surged significantly in the recent past show an overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here, we will discuss the success of four such stocks. These are StoneCo Ltd., BGC Group, Inc., Qifu Technology, Inc. and Universal Health Services.
More on GARP
The GARP theory enables strategic mingling of growth and value-investing principles, which gives us a hybrid strategy by utilizing the best features of both. What GARPers look for is whether or not the stocks are somewhat undervalued and have solid sustainable growth potential (Investopedia).
PEG Ratio and GARP
GARP investing gives priority to one of the popular value metrics — the price/earnings growth (PEG) ratio. Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.
The PEG ratio is defined as (Price/ Earnings)/Earnings Growth Rate
It relates stocks’ P/E ratio with their future earnings growth rates.
While P/E alone gives an idea of stocks that are trading at a discount, PEG, while adding the growth element to it, helps identify stocks with solid future potential.
A lower PEG ratio, preferably less than 1, is always better for GARP investors.
Say for example, if a stock's P/E ratio is 10 and the expected long-term growth rate is 15%, the company's PEG will come down to 0.66, a ratio indicating both undervaluation and future growth potential.
Unfortunately, this ratio is often neglected due to investors' limitations to calculate the future earnings growth rate of a stock.
There are some drawbacks to using the PEG ratio though. It does not consider the very common situation of changing growth rates, such as the forecast of the first three years at a very high growth rate, followed by a sustainable but lower growth rate over the long term.
Hence, PEG-based investing can be even more rewarding if some other relevant parameters are also taken into consideration.
Our Picks
Here are the four stocks that qualified the screening:
StoneCo: This Brazilian company provides financial technology and software solutions to merchants and integrated partners to conduct electronic commerce across in-store, online and mobile channels. StoneCo distributes its solutions principally through proprietary Stone Hubs, which offers hyper-local sales and services; and sells solutions to brick-and-mortar and digital merchants through sales team.
StoneCo stock can be an impressive value investment pick with its Zacks Rank #1 (Strong Buy) and a Value Score of B. Apart from a discounted PEG and P/E, STNE also has an impressive long-term expected earnings growth rate of 26.3%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
For the rest of this Screen of the Week article please visit Zacks.com at:
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