In the equity market, investments 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.

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 four such stocks. These are Afya Limited (AFYA Quick QuoteAFYA - Free Report) , Despegar.com, Corp. (DESP Quick QuoteDESP - Free Report) , Kelly Services (KELYA Quick QuoteKELYA - Free Report) and Norsk Hydro ASA (NHYDY Quick QuoteNHYDY - 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 $750 Million (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 the four stocks that qualified the screening:

Afya: It is a medical education group and medical practice solutions provider in Brazil. It offers educational products and services, including medical schools, medical residency preparatory courses, graduate courses and other programs to lifelong medical learners enrolled across its distribution network, as well as to third-party medical schools. The company operates through three segments: Undergrad, Continuing Education and Medical Practice solutions.

Afya can be an impressive value investment pick with its Zacks Rank #2 and a Value Score of A. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 23.7%.

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

Despegar.com: This online travel company provides a range of travel and travel-related products to leisure and corporate travelers through its websites and mobile applications in Latin America and the United States. Despegar.com sells airline tickets, travel packages, hotel rooms, car rentals, bus and cruise tickets, travel insurance products, destination services and other travel-related products, which enable consumers to find, compare, plan and purchase travel products through its marketplace.

Despegar.com stock can also be an impressive value investment pick with its Zacks Rank #2 and a Value Score of B. Apart from a discounted PEG and P/E, DESP has a solid long-term expected growth rate of 26.3%.

Kelly Services: Together with its subsidiaries, Kelly Services provides workforce solutions to various industries. It helps companies recruit and manage skilled workers and helps job seekers find great work. With a global network of suppliers and partners, Kelly Services connects more than 500,000 people with work every year.

Kelly Services stock can be an impressive investment with its Zacks Rank #1 and a Value Score of A. Apart from a discounted PEG and P/E, KELYA also has an impressive long-term expected growth rate of 13%.

Norsk Hydro: The company engages in power production, bauxite extraction, alumina refining, aluminum smelting and recycling activities, and the provision of extruded solutions worldwide.It operates through Hydro Bauxite & Alumina, Hydro Aluminium Metal, Hydro Metal Markets, Hydro Extrusions and Hydro Energy segments.

Norsk Hydro has an impressive growth rate of 52% for the next five years. The stock currently has a Value Score of A and carries a Zacks Rank #2.

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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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