In the equity market, investments need to be prudently hedged to overcome uncertainties and limit losses related to external shocks. A question that arises often 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.

Per the GARP theory, the strategic mingling of growth and value-investing principles gives us a hybrid strategy, offering an ideal investment 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).

Several stocks, which 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 five such stocks. These include Dropbox (DBX Quick QuoteDBX - Free Report) , Haemonetics (HAE Quick QuoteHAE - Free Report) , PDD Holdings Inc. (PDD Quick QuotePDD - Free Report) , B2Gold Corp. (BTG Quick QuoteBTG - Free Report) and Adtalem Global Education Inc. (ATGE Quick QuoteATGE - Free Report) .

A Few More Words on 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 the stocks’ P/E ratio with the 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 in calculating 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.

Here are the screening criteria for a winning strategy:

PEG Ratio less than X Industry Median

P/E Ratio (using F1) less than X Industry Median (For more accurate valuation purpose)

Zacks Rank of 1 (Strong Buy) or 2 (Buy) (Whether good market conditions or bad, stocks with a Zacks Rank #1 or #2 have a proven history of success.)

Market Capitalization greater than $1 Billion (This helps us to focus on companies that have strong liquidity.)

Average 20 Day Volume greater than 50,000: A substantial trading volume ensures that the stock is easily tradable.

Percentage Change F1 Earnings Estimate Revisions (4 Weeks) greater than 5%: Upward estimate revisions add to the optimism, suggesting further bullishness.

Value Score of less than or equal to B: Our research shows that stocks with a Value Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3 (Hold), offer the best upside potential. 

Here are five out of the 11 stocks that qualified the screening:

Dropbox: It offers a cloud-based platform that businesses and individuals can create, access and share digital content globally. It serves more than 700 million registered users across approximately 180 countries. Expanding product capabilities and a strong partner base are driving Dropbox’s prospects.

Dropbox can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 11.4%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics: The company provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. Haemonetics’ consistent growth performance over the past few quarters reflects its strategic focus on establishing leading positions in high-growth markets to generate solid financial returns.

Haemonetics stock can also be an impressive value investment pick with its Zacks Rank #2 and Value Score of B. Apart from a discounted PEG and P/E, Haemonetics has a solid long-term expected growth rate of 12%.

PDD Holdings: The company is a multinational commerce group that owns and operates a portfolio of businesses. The company is benefiting froman increase in revenues from online marketing services and transaction services.  PDD Holdings currently focuses on bringing more businesses and people into the digital economy.

PDD Holdings stock can be an impressive value investment pick with its Zacks Rank #1 and a Value Score of B. Apart from a discounted PEG and P/E, PDD Holdings also has an impressive long-term expected growth rate of 50.3%.

B2Gold: Vancouver-based B2Gold is a gold producer with three operational mines (one each in Mali, Namibia and the Philippines). The company also has a portfolio of other evaluation and exploration assets in Mali, Burkina Faso, Colombia, Namibia and Finland. The company is benefiting from its ongoing strategy of maximizing profitable mine production, moving forward with its remaining development and exploration projects, and evaluating additional exploration, development and production prospects

B2Gold has an impressive growth rate of 23.5% for the next five years. The stock currently has a Value Score of A and carries a Zacks Rank #2.

Adtalem: It is a leading healthcare education provider and workforce solutions innovator. The institutions of the company offer a wide array of programs across medical and healthcare services. Adtalem’s healthcare and international institutions have shown significant improvement in revenues and profitability since fiscal 2013. The company expects demand for healthcare professionals to outpace supply in the future.

Adtalem can also be an impressive value investment pick with its Zacks Rank #1 and a Value Score of A. Apart from a discounted PEG and P/E, the stock also has a solid long-term expected growth rate of 15%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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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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