There’s no denying that 2022 has been a brutal year for the stock market. With inflation raging and the Federal Reserve taking a hawkish stance, it’s not surprising that growth stocks have seen the brunt of the damage.
However, investors know that challenging market environments create opportunities to buy fantastic companies that have been unfairly punished at bargain prices. And those who want to take advantage of this dislocation should consider growth at a reasonable price (GARP) stocks.
GARP stocks blend growth and value investing – combining the best of both worlds.
The GARP approach can reduce the downside risks of growth investing by filtering out overvalued companies that are most vulnerable to steep losses when market conditions turn sour or the firm has a bad earnings report.
And it can also help investors avoid “value traps.” In other words, value stocks that look deceivingly cheap because the underlying business or industry is in decline.
In order to find the top GARP stocks to buy now, we used Fidelity’s screener to identify names with below-market forward price-to-earnings ratios and earnings growth estimates of 10% or above for the full fiscal year. And then we compared this information against the Stock News POWR Ratings system , which utilizes 118 different factors to determine which stocks are most likely to outperform.
With that in mind, here are seven great GARP stocks that are reasonably priced and expected to grow earnings by at least double digits over the next year. In addition, each is rated Buy in the POWR Ratings system due to their respective strength across a variety of measures, including momentum, value and quality.
Data is as of May 22.
1 of 7 ON Semiconductor
Market value: $24.5 billion
Forward price-to-earnings (P/E) ratio: 11.5
POWR Ratings overall rating: B (Buy)
ON Semiconductor ( ON , $56.46) designs and builds intelligent sensing and power technologies for its customers in the automotive, telecom, aerospace and medical industries.
A major reason that ON should be on the radar of investors seeking out GARP stocks is that it provides exposure to the electric vehicle (EV) industry . ON Semiconductor supplies a variety of products for EVs, including silicon carbide-based power modules for acceleration, inverters, LiDAR (remote sensing technology), chargers, body electronics and the powertrain.
Currently, the company expects automotive revenue to grow at a 17% annual rate over the next three years. This growth should persist well into the decade as EVs are projected to outsell gas-powered vehicles by 2028, according to Credit Suisse.
The company’s other major segments are also doing well due to strength in end-markets like 5G, cloud computing, power generation, and factory automation.
In the first quarter of 2022, ON reported 31% year-over-year revenue growth and adjusted earnings per share (EPS) that more than tripled from Q1 2021. For the full year, analysts, on average, are forecasting $4.89 in EPS and $8 billion in revenue which equates to annual growth of 65.7% and 18.7%, respectively.
Despite such strong earnings momentum, the stock’s price is the same as it was six months ago. This has led to very favorable valuations for ON Semiconductor. Its forward price-to-earnings ratio is currently at 11.5, significantly less than the S&P 500’s P/E of 16.7.
This combination of value and growth makes ON an ideal GARP stock. Historically, the stock’s forward P/E has vacillated between 20 and 30, but this opportunity is likely due to broader weakness in tech and semiconductor stocks . However, ON’s results and strong prospects for its customers’ end-markets mean that the company will continue delivering above-average growth for many years.ON Semiconductor has an overall B rating in the POWR Ratings system, translating to a Buy. B-rated stocks have posted an average annual return of 21.0% since 1999, which compares favorably to the S&P 500’s average annual gain of 8%. Check out ON’s complete POWR Ratings breakdown, including component grades for growth, sentiment and momentum. Freeport-McMoRan Market value: $52.7 billion Forward P/E ratio: 9.4 POWR Ratings overall rating: B (Buy) Freeport-McMoRan ( FCX , $36.31) is a producer of gold, molybdenum and copper, with operations in North America, South America, Africa and Asia. In 2021, the company produced 3.8 billion pounds of copper, 1.4 million ounces of gold and 82 million pounds of molybdenum.Overall, copper accounts for 75% of FCX’s total revenue. Therefore, it’s not surprising that the stock enjoyed spectacular gains over the last two years as copper prices rose 65%. However, copper prices are down by about 15% since March due to COVID-related lockdowns in China and concerns that the global economy may […]
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