Just as the presidential election results are unfolding, investors are certain about one particular thing — a probable increase in volatility in the equity space in the course of the week. At the time of publishing this article, Trump’s return to the White House has been confirmed although not officially declared yet.

Be that as it may, considering the diverse focus and agenda of the parties, conditional to the final/official voting outcome, a number of sectors are bound to see growth compared to others. While there is still time for investors to clearly understand which sectors to put more money in and which sectors to exit, it will be a prudent idea now to follow a hybrid investment strategy to minimize the risk of this external volatility.

Here, to find an answer, we resort to the investing track of the Oracle of Omaha, where he has shown a gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor.

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 are Alibaba Group (BABA Quick QuoteBABA - Free Report) , Pfizer (PFE Quick QuotePFE - Free Report) , Virtu Financial (VIRT Quick QuoteVIRT - Free Report) , Leidos (LDOS Quick QuoteLDOS - Free Report) and Brinker International (EAT Quick QuoteEAT - Free Report) .

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 trading at a discount, PEG, by adding the growth element, 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.

Our Picks

Here are five out of the 14 stocks that qualified the screening:

Alibaba: It is one of the leading e-commerce giants in China. Over the last few years, the company has transformed itself from being a traditional e-commerce company to a conglomerate that has businesses ranging from logistics and food delivery to cloud computing. Alibaba is benefiting from strong momentum in its international commerce retail business, driven by strength in AliExpress’ Choice.

BABA can 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 has an impressive long-term expected growth rate of 26.5%.

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

Pfizer: The company has a wide range of drugs and vaccines. Pfizer’s Biopharma reporting segment includes three broad therapeutic areas, Primary Care, Specialty Care and Oncology. Pfizer’s non-COVID operational revenues are improving fast, driven by its key in-line products like Prevnar, Vyndaqel and Eliquis, new launches, and newly acquired products, including those from Seagen.

Pfizer stock can also be an impressive value investment pick with its Zacks Rank #2 and Value Score of A. Apart from a discounted PEG and P/E, PFE has a solid long-term expected growth rate of 10.7%.

Virtu Financial: The company is a market-leading financial services firm that leverages cutting-edge technology to provide execution services and data, analytics and connectivity products to its clients and deliver liquidity to the global markets. Virtu Financial provides a wide array of offerings in execution, liquidity sourcing, analytics and broker-neutral, and multi-dealer platforms in workflow technology.

VIRT has an impressive growth rate of 23.6% for the next five years. The stock currently has a Value Score of A and carries a Zacks Rank #1.

Leidos: It is a global science and technology leader serving the defense, intelligence, civil and health markets. Its core capabilities include providing solutions in the fields of cybersecurity; data analytics; enterprise IT modernization and so on. Leidos’ defense solutions continue to witness increased contract wins from the Pentagon and other U.S. allies, which led to a solid backlog of $40.56 billion at the end of September 2024.

LDOS 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, Leidos also has an impressive long-term expected growth rate of 12.5%.

Brinker: The company owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar and Maggiano’s Little Italy brands.  Brinker remains steadfast in its goal to drive traffic and revenues through sales-building initiatives such as a streamlined menu and innovation, improved value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of an enhanced service platform.

Brinker 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 also has a solid long-term expected growth rate of 16.4%.

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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