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10/21/02  

Growth at a Reasonable Price searches for equity investments where the P/E trades at a discount to the sustainable growth rate of earning.

"New Money" G.A.R.P Ideas 

G.A.R.P is essentially a value approach to buying earnings growth. In its pure form the GARP investor looks to buy sustainable future growth at a Price/Earning Multiple lower than the growth rate of earnings or growth. This is the so-called PEG ratio or the P/E relative to the sustainable rate of earnings growth looking out in the 3 to 5 year time horizon.

We make also look for accumulation or positive on-balance volume because we would like to achieve good value and  timeliness.

Attempts were made to find stocks selling at a discount to their sustainable earning growth rate. Further, efforts were made to unearth those companies selling at relative discounts to the market, their industry, and their historical P/E ratios, Price/Cash Flow, and Price/ Book. In theory, the market ultimately reverts to value, when the high fliers crash on their inability, in general, to meet outlandish market expectations. Only a few companies like the CSCO's, MSFT's, INTC's, and AOL's make it through the gauntlet of reality and high expectations for sustained periods.

Also, many GARP stocks are cheap for good reason. They may have disappointed, had accounting issues, mismanaged or mangled relations with Wall Street,  a rash of new competition, or discredited management. They might also have impending legal actions. In many cases, they need a catalyst to move to the upside. These equities may have to be held for some time to get the required management focus and action or to attract a buyer. For this reason, we always look for signs of accumulation in the target GARP.

These are some of the criteria we apply to our searches. Each category is based on relative not absolute values, so the companies listed are the most relatively attractive based on the criteria listed below. 

• Relative P/E Ratio- ........ Low

• Projected P/E Next FY........ Low

• Price/ Cash Flow......... Low

• Company/ S&P Growth Ratio........ High

• Company/Industry Growth Ratio

• Relative Price Performance- One Day........ High

• Relative Price Performance- Three Week........ High  

• 5/30 Day Trading Volume Ratio........ High

• Daily Range Gap........High

• Percent Daily Range........High

To see past GARP portfolios, go here. 

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