The current macroeconomic backdrop makes a balanced investment approach particularly compelling. While the U.S. economy continues to expand, sticky inflation, elevated interest rates and lingering geopolitical uncertainties have kept market volatility high. At its June 2026 meeting, the Federal Reserve kept interest rates unchanged while signaling a higher-for-longer policy stance as inflation remained above its 2% target. In such an environment, combining reasonably valued companies with consistent earnings growth can help investors participate in upside opportunities while reducing the risk of overpaying for high-growth stocks.
In fact, the investing track of the Oracle of Omaha over the past few decades and his gradual shift from being a pure-play value investor to a GARP (growth at a reasonable price) investor might give us all the answers.
Per the GARP theory, the strategic mingling of growth and value-investing principles gives us a hybrid strategy, offering an ideal investment 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 ).
Several stocks that have surged significantly in recent years have demonstrated the overwhelming success of this hybrid investing strategy over pure-play value and growth investments. Here, we will discuss the success of four such stocks. These are Aveanna Healthcare AVAH, Nexa Resources NEXA, Hewlett Packard HPE and Lenovo Group LNVGY.
A Few More Words on 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 the stocks’ P/E ratios to the future earnings growth rates.
While P/E alone gives an idea of stocks that are trading at a discount, PEG, while adding the growth element to it, 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.
Growth Score of less than or equal to B: Our research shows that stocks with a Growth Style Score of A or B, when combined with a Zacks Rank #1, 2 or 3, offer the best upside potential.
Our PEG-Driven Picks
Here are four stocks that qualified the screening:
Aveanna is a diversified U.S. home healthcare provider offering pediatric and adult care that helps patients remain at home, reducing reliance on hospitals and skilled nursing facilities. It operates through three segments: Private Duty Services, Home Health & Hospice and Medical Solutions, providing skilled nursing, therapy, personal care and related services.
AVAH can be an impressive GARP investment pick with its Zacks Rank #2, a Value Score of A and a Growth Score of A. Apart from a discounted PEG and P/E, the stock has an impressive long-term expected growth rate of 14.9%.
Nexa Resources is a global zinc mining and smelting company operating through its Mining and Smelting segments. It produces zinc, gold, sulfuric acid, zinc oxide and other metals and by-products, with five polymetallic mines across Peru and Brazil, plus one zinc smelter in Peru and two in Brazil.
NEXA has a Zacks Rank #1, a Value Score of A and a Growth Score of A. Nexa Resources also has an impressive five-year historical growth rate of 49%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Hewlett Packard develops enterprise IT solutions across five segments: Server, Hybrid Cloud, Networking, Financial Services and Corporate Investments. Hewlett Packard’s portfolio includes servers, hybrid cloud and storage platforms, networking and security products, software and related support services, serving customers worldwide.
HPE stock can be an impressive GARP investment pick with its Zacks Rank #1, a Value Score of B and a Growth Score of B. Apart from a discounted PEG and P/E, Hewlett Packard has an impressive long-term expected growth rate of 32%.
Lenovo develops, manufactures and markets technology products and services through its Intelligent Devices, Infrastructure Solutions and Solutions and Services segments. Its portfolio includes PCs, servers, smartphones, tablets, software, IT infrastructure, consulting, managed services and digital solutions, serving customers worldwide.
LNVGY can also be an impressive GARP investment pick with its Zacks Rank #1, a Value Score of B and a Growth Score of B. Apart from a discounted PEG and P/E, Lenovo also has a solid long-term expected growth rate of 10.2%.
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Lenovo Group Ltd. (LNVGY): Free Stock Analysis Report
Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report
Nexa Resources S.A. (NEXA): Free Stock Analysis Report
Aveanna Healthcare Holdings Inc. (AVAH): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).