11 Great GARP Stocks to Buy Now
Growth at a reasonable price (GARP) stocks are investing's version of having your cake and eating it too.
All of the major stock market indexes are priced at or near all-time highs. So it is not surprising that countless individual stocks are trading at lofty, and likely unsustainable, valuations. That said, you can still find growth at a reasonable price, or GARP, if you know where to look.
To find the market's best GARP stocks, we tapped Value Line, which boasts a database of nearly 6,000 publicly traded stocks and proprietary ranks, ratings and estimates/projections.
Using Value Line's resources, we started by finding stocks that are presently trading at price-to-earnings (P/E) ratios that are below their 10-year historical averages. But naturally, GARP requires growth too, so we then homed in on companies that Value Line's in-house analyst team expects to increase annual earnings per share (EPS) by at least 25%, on average, over the next three to five years, compared to the average of 2018-20.
That 25% minimum is a high bar to exceed, but the goal here is to find companies that possess excellent product rosters, enjoy wide margins and generate ample profits to potentially fund additional growth endeavors.
Read on as we explore 11 great GARP stocks that are reasonably priced and are expected to achieve significant earnings growth over the next several years. These stocks, as a group, should fit nicely in most equity portfolios – particularly those that are focused on long-term gains.
Data is as of June 27. All financial data courtesy of Value Line except where it is otherwise noted. P/E is Value Line's Current P/E, which utilizes 12 months of earnings – in this case, the past quarter of actual earnings, and the next three quarters' worth of estimated earnings. Stocks listed in alphabetical order.
American International Group
- Market value: $41.0 billion
- Current P/E vs. 10-year average: 11.3 and 29.0
The financial history of American International Group (AIG, $49.02) requires immediate attention in terms of its inclusion on this list. Over the past decade, the insurance behemoth has achieved sizable profits in some years; losses or just modest earnings in others.
That's because insurance is a volatile business. AIG's bottom line is, of course, heavily influenced by natural disasters that, when they strike, lead to billions in catastrophe losses and insurance payouts. On the bright side, following those events, consumers and businesses often become eager to purchase new policies or expand existing ones. American International has, however, also been able to steadily raise rates over time.
As a result of its choppy profits, AIG's annual P/Es over the past decade have spanned a wide band. For instance, in 2020, AIG's multiple was a hefty 38.2. In the year prior, it was just 13.7, and AIG's valuation was in the single digits in 2012 and 2013. All told, for the past 10 years, its average P/E has been 29.0 – however, the shares currently change hands at just 11.3 times earnings.
AIG has been struggling mightily with the collateral effects of the COVID-19 pandemic. A surge in virus-related claims activity has placed heightened pressure on profitability. What's more, a persistently low interest-rate climate has deflated returns in the company's investment portfolio. In full-year 2020, the company recorded insurance profits of just 89 cents per share, down from $3.69 in 2019.
However, AIG appears to be one of the best GARP stocks at the moment because it appears the situation will materially improve.
Industry data point to a normalization in loss statistics, which should translate into loftier underwriting income ahead. Meantime, leadership's improved expense controls will further support the bottom line. Elsewhere, an earlier spike in policy claims has paved the way for meaningful rate hikes during the upcoming renewal season, spurring increased premiums and earnings. And although sluggish interest rates might remain a hindrance for the insurer's fixed-income holdings in the near term, stronger equity markets have helped mitigate a fair amount of the downturn here.
Value Line estimates profits of $4.35 per share this year, and projects that earnings will reach $7.00 within the next five years. From the average of 2018 to 2020 share profits, that works out to projected average annual growth of 28.5%.
- Market value: $10.6 billion
- Current P/E vs. 10-year average: 4.8 and 8.5
The stocks of steel manufacturers traditionally trade at modest P/Es. Cleveland-Cliffs (CLF, $21.20) – which, through a couple of recent acquisitions, is now largest flat-rolled steel producer in the United States – has traded at just 8.5 times earnings over the past decade. For comparison, the median P/E for the Value Line universe of 1,700 stocks is 19.0 over the past 10 years.
Presently, CLF's valuation is just 4.8 times earnings, suggesting that the stock is undervalued.
Flat-rolled steel refers to the processed metal that is formed via melting and stretching under significant force. It is made by placing the metal in between two rollers, and the final product is often less than 6 millimeters thick. This steel has numerous applications, including in automobiles, home appliances, shipbuilding, and construction.
In 2020, Cleveland-Cliffs successfully acquired fellow steel producers AK Steel and ArcelorMittal USA. The purchases greatly enhanced Cleveland-Cliffs' size and scope of operations. After reporting revenues of $5.4 billion and a bottom-line loss of 32 cents per share in 2020, Cleveland-Cliffs appears poised to crush those figures this year. Thanks to the benefits and contributions from recent the acquisitions, as well as the current strong pricing environment for steel (helped by scarcity of scrap metal and other materials), Value Line estimates that the company will achieve revenues and profits of roughly $19.1 billion and $4.40 per share, respectively, for full-year 2021.
Looking further out, pricing will probably not be as advantageous thereafter, but VL still projects annual growth in earnings of 26.5% out five years.
A caveat to our rather bullish outlook is Cleveland-Cliffs' spotty balance sheet. As of March 31, 2021, the company had $5.7 billion in long-term debt and just $110 million in cash assets. On a couple of occasions over the past decade, due to its lackluster financial position, the company has had to suspend dividend payments. So, while CLF might offer the value and growth you're looking for out of growth stocks, it still has a significant risk to monitor.
Dine Brands Global
- Market value: $1.5 billion
- Current P/E vs. 10-year average: 16.4 and 17.0
Previously known as DineEquity, Dine Brands Global (DIN, $87.28) – the restaurant operator and franchiser of more than 1,750 International House of Pancakes (IHOP) and 1,640 Applebee's locations – suffered during the COVID-19 pandemic, just like many restaurant chains.
In 2020, a large percentage of Dine Brands' restaurants closed and/or operated at reduced capacity/hours. This led to a sharp reduction in year-over-year revenues and earnings. In fact, in 2020, total revenues were $689 million, compared to $910 million in 2019. The bottom line was even more heavily impacted. Following the significant profit of $5.85 per share in 2019, a huge loss of $6.43 was incurred last year.
Fortunately, 2020's terrible results are in the rearview mirror. In fact, the company started this year with a better-than-expected performance. In the March quarter, sales of $204.2 million and earnings of $1.51 a share topped Value Line estimates, as well as Wall Street's consensus forecasts. Same-store sales turned positive toward the end of the quarter, and the Applebee's unit was the better performer overall.
Top- and bottom-line improvement appear likely to continue in the months ahead, as diners return to IHOP and Applebee's in conjunction with the rollout of the coronavirus vaccines. Further, new CEO John Peyton may well breathe new life into Dine Brands franchisees, given his successful track record; he was previously the president and CEO at Realogy Franchise Group, which owns numerous real estate brands.
The investment community has taken notice of Dine Brands' recovery. Year to date, the stock price has advanced by more than 50%. For comparison, the S&P 500 Index is up 14% over that same period.
As for its inclusion on this list of the market's best GARP stocks? DIN is now trading at a price-to-earnings multiple (currently 16.4x) that is slightly below its historical average of 17.0. And thanks to the hefty 2020 loss and likely business improvements, Value Line projects that Dine Brands will expand annual earnings by 35% over the next five years.
- Market value: $54.4 billion
- Current P/E vs. 10-year average: 12.6 and 17.0
Freeport-McMoRan (FCX, $37.24) shares have richly rewarded shareholders of late. Although currently well off its recent high, the stock price has advanced about 240% over the past 12 months, easily topping the S&P 500's increase of 42%.
But despite the rapid appreciation, FCX's valuation remains below its historical average. The equity is currently priced at 12.6 times earnings, while its 10-year average is 17.0 – mainly due to the large profit advance Value Line forecasts for this year.
Freeport-McMoRan is a commodity stock engaged in the exploration and production of copper, gold, and other commodities in Indonesia, North America, South America and Africa. Our bullish outlook for the company mostly stems from its copper operations. According to management, it mined and produced 3.2 billion pounds of copper in 2020 and, at year end, had 113.2 billion pounds of copper reserves. The current price per pound of the metal is around $4.42. This is within striking distance of its all-time high of $4.76, which was reached on May 11. For comparison, in calendar 2020, the average price of a pound of copper was $2.80.
Looking ahead, Value Line projects that Freeport-McMoRan's earnings will increase by 36.5% annually. Increased demand for electric vehicles in the U.S. is a key catalyst since these autos require the use of twice as much copper than those with traditional internal combustion engines. We expect copper prices to hold up well, since inventories should remain low and as the global economy gains momentum.
In 2020, FCX turned a profit of 50 cents per share (excluding 9 cents of non-recurring charges). For this year, Value Line's estimate currently stands at $2.95, and they project that the bottom line will reach $4.35 by 2025.
- Market value: $8.0 billion
- Current P/E vs. 10-year average: 10.6 and 25.0
Kinross Gold (KGC, $6.38), another commodity play among our GARP stocks, tends to trade at a premium valuation relative to the broader market. However, that might be more of a function of its challenging business rather than investment enthusiasm about the stock. Over the past decade, there have been several years where Kinross eked out only small annual profits.
All told, on average, KGC trades at 25.0 times earnings. Presently, however, the stock is changing hands at a P/E of just 10.6, suggesting that the equity is materially undervalued.
The Toronto-based corporation is engaged in the mining of gold and, to a lesser extent, silver ore. In the first quarter of 2021, Kinross produced 558,777 ounces of gold and, for the year, management reiterated its guidance of 2.4 million ounces. It also repeated its goal projection of reaching production of 2.9 million ounces in 2023, which would be 20% more than 2020's output. In the first quarter, the average price of gold was $1,787 per ounce, compared to $1,581 in the year-ago period.
Value Line expects healthy annual profits over the next few years. Expect Kinross to reach its goal of 2.9 million ounces in 2023, since the company has a deep portfolio of mines, as well as several projects in the pipeline and new exploration opportunities. For instance, management is in the process of completing several studies of potential mines in Nevada and Kentucky.
Also helping matters is the price of gold, which is currently at $1,783 per ounce. If the price of gold holds up reasonably well, and management is successful at its various mining endeavors, profits should exceed $1.00 per share out five years in the future. This would represent annual gains of 25.0%. If near the mark, KGC's valuation should noticeably tick higher.
- Market value: $19.7 billion
- Current P/E vs. 10-year average: 15.1 and 18.0
L Brands (LB, $72.27) has recovered a great deal of lost ground of late, and its valuation suggests that it might have more room to run.
The company is one of the largest retailers of women's lingerie and other apparel, operating more than 2,660 Victoria's Secret and Bath & Body Works locations. And it was hit hard by company-specific challenges, a management shakeup (Andrew Meslow became the new CEO in May 2020) and the pandemic. However, things are looking up now. After bottoming out at $8.00 per share in early 2020, the stock price has staged a remarkable comeback. Profits have also recovered following four consecutive quarters of bottom-line losses.
For the current fiscal year, Value Line estimates that L Brands will increase profits by 60%, to $4.80 per share. Management is also bullish in regards to the near term, recently raising financial guidance; they cited increased consumer spending trends and the easing of pandemic restrictions. The good times may well persist, and Value Line projects annual earnings growth of 28.5%.
These estimates, if near the mark, would likely please investors, but management has other plans to unlock additional shareholder value. Leadership believes that Bath & Body Works and Victoria's Secret will be better off on their own. Thus, the company plans to separate them into independent, publicly traded companies in August. Shareholders of record at that time will receive shares in both new entities.
The current valuation remains quite appealing, and ahead of the split, L Brands appears to be among the market's best GARP stocks. Following the spinoff, however, investors will need to take a close look at the resulting entities; those worried about one of the two businesses might want to wait until after the split to dive in.
- Market value: $11.6 billion
- Current P/E vs. 10-year average: 15.8 and 24.0
Brewer Molson Coors (TAP, $55.08) is another company on the mend.
The maker of Coors Light, Molson Canadian and numerous other beers closed out 2020 on a weak note. Sales of $2.3 billion were below Value Line estimates and represented a year-over-year decline of 8%. The bottom line, which was hit by a huge goodwill impairment charge, came in at a loss of $6.32 per share. Even excluding that charge, the adjusted loss of 40 cents per share was still well short of analysts' consensus estimates.
On the bright side, the situation has improved of late, and Molson Coors achieved March-quarter profits of 39 cents per share, compared to the prior-year loss of 54 cents.
TAP stock, which has easily outperformed the S&P 500 Index so far in 2021 (20%-14%), is still trading at an appealing 15.8 times earnings, compared to its 10-year historical average of 24.0. Looking ahead, we think a more premium valuation is in the cards, and Value Line projects annual earnings growth of 41.0%. While that's among the best estimates among our top GARP stocks, that rate admittedly is helped dramatically by 2020's steep loss.
Our bullish outlook mostly stems from management's "revitalization plan." It entails pushing its core brands, aggressively growing its premium offerings and expanding beyond the beer aisle. In particular, Molson Coors recently inked a deal to distribute Superbird, a ready-to-drink tequila-based cocktail. It also debuted a line of hard seltzers named Proof Point. These endeavors provide the company with exposure to the rapidly growing ready-to-drink space.
All told, following 2020's large loss of $4.38 per share, Value Line expects a quick recovery, leading to profits of $3.50 this year. Out five years, the bottom line might well come within reach of $5.00. If that comes to fruition, a stock price that is double its current level is easily justified.
Plains All American Pipeline
- Market value: $8.3 billion
- Current P/E vs. 10-year average: 9.7 and 22.0
Investors in Plains All American Pipeline, LP (PAA, $11.19) have not done well in the past. The master limited partnership (MLP), which owns and operates pipelines and storage facilities, has sustained negative five- and 10-year historical per-unit growth rates of revenues, cash flows, earnings and book value. (MLP ownership shares are referred to as units.)
Further proof of PAA's disappointing showing are its annual total returns. Even though the equity has always paid a large dividend, it has consistently underperformed the broader market – and by a wide margin. For instance, over the past five years, PAA's total return (that's unit price plus distributions, which are effectively the MLP equivalent of dividends) has been roughly -35%. Over that same time frame, the S&P 500 Index has delivered more than 135% in returns.
The situation here could improve, however. Earnings should at least partially recover in 2021 and 2022. First-quarter results of 51 cents per unit came in below Value Line expectations. Over the remainder of the year, however, comparisons should be much more positive as market conditions, though still difficult, improve somewhat. Oil prices remain decent at about $70 a barrel, and as the pandemic seems to be winding down, GDP should increase considerably, leading to greater demand for certain crude-related products.
All told, VL's unit-earnings estimates for this year and next are $1.20 and $1.40, respectively. This remains well below PAA's post-pandemic levels, but far better when compared to 2020's loss of $3.83.
Presently, Plains All American is trading at 9.7 times earnings, compared to its historical average of 22.0. Our decent business outlook, coupled with last year's large loss, may well lead to annual earnings gains of 30.5%.
That said, this is a GARP stock for risk-tolerant investors only. In addition to its long history of underperforming, PAA halved its distribution during the second quarter of 2020. Additional cuts can't be ruled out.
- Market value: $10.8 billion
- Current P/E vs. 10-year average: 22.1 and 47.0
Qiagen (QGEN, $48.55) had an outstanding start to the year, driven by solid growth of non-COVID-19 test products.
No doubt, soaring global demand for test kits that detect the COVID-19 virus were a boon for this diagnostics maker last year. But with COVID on the decline, QGEN's strength has stemmed from non-COVID-19-based products in recent months, with that portion of the portfolio generating first-quarter sales growth of 16%.
These broad-based gains helped drive a 52% top-line increase in the opening quarter, and catapulted adjusted profits to 66 cents per share, exceeding management's expectations. Reported earnings per share surged from 17 cents per share to 56 cents, just about matching Value Line's call.
QGEN had been a highflier for some time, but the momentum stalled in February and March after merger rumors fizzled. Now, it is trading at 22.1 times earnings, which is less than half its 10-year average of 47.0.
Our outlook for the remainder of 2021 is positive, thanks to some continued demand for COVID-19 testing, but also sales of non-COVID kits. Those include, for example, the company's QuantiFERON technology, which is typically used to detect tuberculosis, but can also detect Lyme disease. Growth might well taper off in 2022, but it should strengthen thereafter.
As the pandemic fades and life returns to normal, the COVID-19 product category will likely weaken. A broader molecular diagnostics portfolio, expansion into new markets, and acquisitions should be an offset, though. Qiagen is investing in research and development to bolster its competitive position and execute its growth plan beyond the health crisis.
All told, Value Line estimates that earnings will come in at $2.20 this year and reach $2.75 out five years. Compared to the average of 2018 to 2020, annual earnings growth of 25.0% appears obtainable. That, as well as the potential for P/E expansion, makes QGEN one of the best GARP stocks you can buy at the moment.
- Market value: $3.5 billion
- Current P/E vs. 10-year average: 9.8 and 13.0
Rent-A-Center (RCII, $52.21) shares have more than doubled over the past year, and yet the valuation remains appealing. RCII is presently trading under 10 times earnings, compared to the 10-year average of 13.0.
Recent financial results have been excellent, as its products and services have resonated well with consumers. The rent-to-own retailer of electronics, appliances, and furniture should also continue to benefit from a recent acquisition that might fuel annual earnings advances of 39.5%.
In February, Rent-A-Center completed the acquisition of lease-to-own outfit Acima Holdings for $1.65 billion in cash and stock. Acima greatly expands the company's technology, product offerings, and market reach. Specifically, Acima, on its own, had a national presence in retail and e-commerce, and it has already noticeably bolstered Rent-A-Center's digital operations with a new virtual platform that enables wider payment options.
In the March quarter, Rent-A-Center had revenues of $1.0 billion – a year-over-year increase of 48%. Contributions from Acima made up a good chunk of the increase, but Rent-A-Center's core business also performed well. It delivered revenues of $524.9 million, up from $455.0 million the year before.
Looking ahead, the company's prospects appear quite promising. Management recently raised its full-year 2021 financial guidance; it now anticipates revenues of $4.45 billion to $4.60 billion, and for earnings of $5.30 to $5.85 per share. Presently, Value Line's estimate is at the lower end of guidance, at $5.35. Still, if the VL is correct, that would represent a gain of 52% compared to 2020's tally of $3.53. Looking farther out, earnings are projected to exceed $9.50 per share in five years.
All told, Rent-A-Center ought to continue to fire on all cylinders.
Sirius XM Holdings
- Market value: $25.8 billion
- Current P/E vs. 10-year average: 21.7 and 36.0
Sirius XM Holdings (SIRI, $6.52) has been a perpetual underperformer on the stock front. The equity has meaningfully trailed the broader market's returns over the trailing one-, three- and five-year periods. Although revenues have consistently trended in the right direction, operating costs and interest expense have increased at similar rates. The result: nominal profits each year.
That said, the situation may be ripe for improvement.
After reporting a profit of just 3 cents per share in 2020, Value Line estimates that Sirius XM's bottom line will hit 30 cents per share this year. That should come on a 4% revenue increase, wider margins thanks to tighter cost controls, and continued share buybacks. On the latter note, management spent $1.57 billion on stock repurchases in 2020, and we think that this initiative will remain well funded.
What earns Sirius XM placement on this list of the market's top GARP stocks?
SIRI trades at 21.7 times earnings, well below its historical average of 36.0. We think it can again approach that multiple thanks to the factors mentioned above, and Value Line projects that earnings will increase 35.5% annually over the next half-decade.
Sirius should also continue to widen its reach. Over the past few years, the company has strengthened its market position with the additions of Pandora and Stitcher, and an investment in Soundcloud. Plus, new-car market penetration rates should climb further with the rollout of its next generation of satellite radios, which integrates in-car entertainment. Sirius probably will continue to invest heavily in technological enhancements and its branded content. Likewise, the company ought to pursue strategic partnerships or tuck-in acquisitions to complement its current roster of offerings.
Even without potential mergers and acquisitions, Value Line estimates that Sirius XM still can reach profits of $1.00 per share within five years.