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3 Best GARP Stocks to Beat Pandemic-Led Market Inefficiency
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Yesterday was noteworthy for the investment world, which is on a rollercoaster ride since the beginning of 2020. The Nasdaq stroked a fresh high and closed 0.74% above the previous day, marking the eighth consecutive session of daily gains.
The Dow and the S&P 500 too gained 0.5% and 0.43% respectively on improved market sentiment around Sanofi (SNY - Free Report) and GlaxoSmithKline’s (GSK - Free Report) announcement of the possibility of a COVID-19 vaccine approval by the first half of 2021. Further, Apple’s (AAPL - Free Report) series of positive announcements at the WWDC 2020 yesterday added impetus to market rally.
The Unrest So Far
As said by Dan Deming, managing director at KKM Financial, “You’re seeing the psychology in the market get retested today (going by a recent CNBC report).”
Investors, who have experienced the biggest one-day index draw down in three months on Jun 10, seem unconvinced about any lasting impact of the latest rally. The new wave of coronavirus cases in the United States and China following a rushed ‘unlocking’ and the forecast of a significant fall in global GDP in 2020 had pushed the market into sell territory.
We also note that, in April, despite a record number of job losses, the market moved higher with the introduction of several new fiscal aids by governments across nations. However, health experts’ warning of a second wave immediately poured cold water on this positive sentiment. There was another temporary market rebound in late May on a recovery in the employment rate.
Needless to say, the unprecedented global health crisis is mercilessly giving a psychological shock to the investment world.
Is the Efficient Market Hypothesis Getting Quashed?
We may start with an example of how illogically the market is behaving right now to understand the situation better. Immediately after coronavirus was declared a global pandemic, the market failed to give any rational reaction. In fact, on Feb 12, all the three benchmark indices finished at their record highs.
Confused investor sentiment cropping up around the pandemic-led uncertainties are forcing the investment world to act in a manner that contradicts the theory of market efficiency. Speaking precisely, market efficiency means the natural market mechanism where share prices already reflect every information about markets and stocks. A smooth run of this concept requires the financial market to act faster than the general public.
However, in the wake of coronavirus, financial markets worldwide are reacting to the severity of the crisis approximately the same time and the same way as the general public. The above-discussed financial market uproar over the past few months is a clear sign that it has repetitively failed to caution investors ahead of time to help brace their portfolio from any pandemic-led disaster.
As uncertainty is wrecking havoc on the global economy, economists fear that market inefficiency will lead to more financial failures going forward.
GARP- An Effective Investment Strategy to Look Forward to
It is quite clear that despite the latest positivity in the market, a dip may occur again and volatility is likely to remain given the broad global economic uncertainty. That said, investors with a longer-term horizon may want to buy some growth-focused stocks that are at their discounted prices right now due to the ongoing market sell offs.
Here, we are talking about a hybrid investment strategy called GARP (growth at a reasonable price). Often known as a special case of growth and value investments, GARP, helps to find out stocks with solid long-term prospects that have become absurdly cheap amid economic woes.
To narrow down the list, we have selected those with a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Stong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Three Top Picks
Ericsson (ERIC - Free Report) : Ericsson is positive on the longer-term outlook, but the second quarter is likely to be tad softer than normal due to the timing of strategic contracts and uncertainty induced by COVID-19. Nevertheless, with the current visibility, it maintains the financial targets for 2020 and 2022. The company is witnessing healthy momentum in its business, based on the strategy to increase its investments in technology leadership, including 5G.
This Zacks Rank #2 stock has a VGM Score of B. Apart from a discounted PEG and P/E, the stock also has an impressive long-term expected growth rate of 25.9%.
Quest Diagnostics (DGX - Free Report) : Quest Diagnostics’ newly launched COVID-19 tests have already started to add to the company’s Diagnostic Information Services sales. Further, the company’s long-term growth outlook based on its new two-point strategy to generate shareholders’ value-accelerating growth and drive operational excellence has continued to drive investors' optimism.
This Zacks Rank #2 stock has a VGM Score of A. Apart from a discounted PEG and P/E, the stock also has an impressive long-term historical growth rate of 8.8%.
The Kroger Co. (KR - Free Report) : A dominant position among the nation’s largest grocery retailers enables Kroger to boost market share by introducing new items such as plant-based products, digital coupons, order online pick up in store and smart shopping lists. Further, driven largely by coronavirus-led demand, the company registered a sharp rise in sales across both brick-&-mortar stores and digital channels.
The stock sports a Zacks Rank #1 has a VGM score of A. Apart from a discounted PEG and P/E, the stock also has an impressive fiscal 2021 growth rate of 23.64%.
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Image: Bigstock
3 Best GARP Stocks to Beat Pandemic-Led Market Inefficiency
Yesterday was noteworthy for the investment world, which is on a rollercoaster ride since the beginning of 2020. The Nasdaq stroked a fresh high and closed 0.74% above the previous day, marking the eighth consecutive session of daily gains.
The Dow and the S&P 500 too gained 0.5% and 0.43% respectively on improved market sentiment around Sanofi (SNY - Free Report) and GlaxoSmithKline’s (GSK - Free Report) announcement of the possibility of a COVID-19 vaccine approval by the first half of 2021. Further, Apple’s (AAPL - Free Report) series of positive announcements at the WWDC 2020 yesterday added impetus to market rally.
The Unrest So Far
As said by Dan Deming, managing director at KKM Financial, “You’re seeing the psychology in the market get retested today (going by a recent CNBC report).”
Investors, who have experienced the biggest one-day index draw down in three months on Jun 10, seem unconvinced about any lasting impact of the latest rally. The new wave of coronavirus cases in the United States and China following a rushed ‘unlocking’ and the forecast of a significant fall in global GDP in 2020 had pushed the market into sell territory.
We also note that, in April, despite a record number of job losses, the market moved higher with the introduction of several new fiscal aids by governments across nations. However, health experts’ warning of a second wave immediately poured cold water on this positive sentiment. There was another temporary market rebound in late May on a recovery in the employment rate.
Needless to say, the unprecedented global health crisis is mercilessly giving a psychological shock to the investment world.
Is the Efficient Market Hypothesis Getting Quashed?
We may start with an example of how illogically the market is behaving right now to understand the situation better. Immediately after coronavirus was declared a global pandemic, the market failed to give any rational reaction. In fact, on Feb 12, all the three benchmark indices finished at their record highs.
Confused investor sentiment cropping up around the pandemic-led uncertainties are forcing the investment world to act in a manner that contradicts the theory of market efficiency. Speaking precisely, market efficiency means the natural market mechanism where share prices already reflect every information about markets and stocks. A smooth run of this concept requires the financial market to act faster than the general public.
However, in the wake of coronavirus, financial markets worldwide are reacting to the severity of the crisis approximately the same time and the same way as the general public. The above-discussed financial market uproar over the past few months is a clear sign that it has repetitively failed to caution investors ahead of time to help brace their portfolio from any pandemic-led disaster.
As uncertainty is wrecking havoc on the global economy, economists fear that market inefficiency will lead to more financial failures going forward.
GARP- An Effective Investment Strategy to Look Forward to
It is quite clear that despite the latest positivity in the market, a dip may occur again and volatility is likely to remain given the broad global economic uncertainty. That said, investors with a longer-term horizon may want to buy some growth-focused stocks that are at their discounted prices right now due to the ongoing market sell offs.
Here, we are talking about a hybrid investment strategy called GARP (growth at a reasonable price). Often known as a special case of growth and value investments, GARP, helps to find out stocks with solid long-term prospects that have become absurdly cheap amid economic woes.
To narrow down the list, we have selected those with a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Stong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Three Top Picks
Ericsson (ERIC - Free Report) : Ericsson is positive on the longer-term outlook, but the second quarter is likely to be tad softer than normal due to the timing of strategic contracts and uncertainty induced by COVID-19. Nevertheless, with the current visibility, it maintains the financial targets for 2020 and 2022. The company is witnessing healthy momentum in its business, based on the strategy to increase its investments in technology leadership, including 5G.
This Zacks Rank #2 stock has a VGM Score of B. Apart from a discounted PEG and P/E, the stock also has an impressive long-term expected growth rate of 25.9%.
Ericsson Price
Ericsson price | Ericsson Quote
Quest Diagnostics (DGX - Free Report) : Quest Diagnostics’ newly launched COVID-19 tests have already started to add to the company’s Diagnostic Information Services sales. Further, the company’s long-term growth outlook based on its new two-point strategy to generate shareholders’ value-accelerating growth and drive operational excellence has continued to drive investors' optimism.
This Zacks Rank #2 stock has a VGM Score of A. Apart from a discounted PEG and P/E, the stock also has an impressive long-term historical growth rate of 8.8%.
Quest Diagnostics Incorporated Price
Quest Diagnostics Incorporated price | Quest Diagnostics Incorporated Quote
The Kroger Co. (KR - Free Report) : A dominant position among the nation’s largest grocery retailers enables Kroger to boost market share by introducing new items such as plant-based products, digital coupons, order online pick up in store and smart shopping lists. Further, driven largely by coronavirus-led demand, the company registered a sharp rise in sales across both brick-&-mortar stores and digital channels.
The stock sports a Zacks Rank #1 has a VGM score of A. Apart from a discounted PEG and P/E, the stock also has an impressive fiscal 2021 growth rate of 23.64%.
The Kroger Co. Price
The Kroger Co. price | The Kroger Co. Quote
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>