GARP is an acronym used in the investment industry to connote “growth at reasonable prices.” Last week, we discussed the market size and style trends year-to-date and what our models expect to see for the year ahead. The bottom line is that both our predictive and valuation models thought the mega-cap-weighted ETFs, such as QQQ, IVV, XLK and IWF had gotten ahead of themselves in year-to-date gains and were now candidates to investigate for potentially trimming back positions. Conversely, we found the iShares Russell Small Cap ETF (IWF) to be the most attractive ETF that combines size and style. Beyond that, for potential price appreciation at a good value, we also liked the standard in small Cap, iShares Russell 2000 ETF (IWM) along with IWD, the iShares Russell 1000 Large Cap Value ETF.
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At that time, we also included four stocks that our models considered ripest for price appreciation along with being in at least our top half for valuation. We got some feedback that two stocks, Aspen Aerogels (ASPN) and Enviva Corp (EVA) were scary because they had both dropped more than 30% in the past quarter and 70% in the past year. As such, they were the epitomes of falling knives. It was also suggested that it would be more helpful to focus on stocks our models find relatively attractive that provided expected earnings growth at reasonable prices, paid a dividend, and had non-negative momentum. Thus, the title of this week’s article is GARP with yield “excluding falling knives”.
The selection criteria we used were (screens like this can be performed on the ValuEngine.com website):
- VE Predictive Rating of 4 (Buy) or 5 (Strong Buy);
- Undervaluation Percentile > 50;
- Dividend yield >= 2.0%
- 1-Year Price Change > 0.
- Expected Earnings Growth rate > 5%
There are five stocks that passed those screens in our model and databases. They are:
Capital City Bank Group, Inc. (CCBG) is a financial holding company with banking subsidiaries and numerous indirect subsidiaries. The Banks are full-service banks, engaged in the commercial and retail banking business.
Energizer Holdings Inc. (ENR) is one of the world’s leading manufacturers and distributors of batteries and lighting products. The company is a major designer and marketer of automotive, fragrance, appearance, and air conditioning recharge products.
Laureate Education, Inc. (LAUR) is a degree-granting higher education institution. The company offers high-quality undergraduate, graduate, and specialized programs. Laureate Education, Inc. is headquartered in Baltimore, Maryland.
Oxford Industries, Inc. (OXM) is an apparel company which designs, sources, markets and distributes products bearing the trademarks of its owned and licensed brands. Oxford’s owned brands include Tommy Bahama, Lilly Pulitzer, Oxford Golf, and Billy London.
Strategic Education, Inc. or SEI, (STRA) through its subsidiaries Strayer University and New York Code and Design Academy (NYCDA), provides a range of post-secondary education and other academic programs in the United States.
This table presents a look at the data behind these stocks. The iShares S&P 500 Index ETF (IVV) is used for comparison and benchmarking purposes.
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
| Ticker | CCBG | ENR | LAUR | OXM | STRA | IVV |
| Stock/ETF | Capital City Bank Group | Energizer | Laureate Education | Oxford Indus-tries | Strategic Education | iShares S&P 500 Index ETF |
| Market Cap, (Billions) | 0.48 | 2.33 | 1.88 | 1.67 | 2.28 | 459.9
(Mkt-Weighted Avg. Holding) |
| VE Rating | 4 | 4 | 4 | 4 | 4 | 3 |
| VE Forecast 3-mo. Price Return | +1.06% | +0.80% | +3.68% | +0.48% | +4.40% | +1.80% |
| VE Forecast 6-Mo. Price Return | +0.47% | +0.40% | +4.81% | +0.90% | +4.84% | +3.90% |
| VE Forecast 1-yr. Price Return | +9.59% | +4.36% | +6.69% | +4.97% | +8.85% | -2.02% |
| Last mo. Price Return | -8.61% | -2.66% | +4.72% | -9.49% | +5.77% | +2.90% |
| Last 3 mo. Price Return | -11.32% | -9.33% | +12.06% | -3.09% | +4.36% | +4.07% |
| Last 6 mo. Price Return | -17.18% | +20.05% | +9.60% | +13.39% | +44.42% | +10.13% |
| Historic 1-Yr. Price Return | +12.10% | +2.07% | +3.36% | +10.67% | +30.76% | -5.95% |
| Historic 5-Yr Ann. Price Return | +3.38% | -10.81% | -3.13% | +6.96% | -2.35% | +0.10% |
| Volatility | 28.65% | 34.61% | 47.03% | 42.47% | 37.09% | 18.90% |
| Sharpe Ratio | 0.12 | -0.31 | -0.07 | 0.16 | -0.06 | 0.46 |
| Beta | 0.62 | 1.02 | 0.94 | 1.60 | 0.61 | 1.00 |
| Undervaluation Percentile | 55 | 65 | 53 | 55 | 52 | 32* |
| P/B Ratio | 1.6 | 17.6 | 2.3 | 2.9 | 1.4 | 3.8 |
| P/E Ratio | 10.7 | 11.6 | 24.9 | 10.0 | 42.6 | 19.8 |
| PEG Ratio | 0.47 | 0.90 | 0.24 | 1.08 | 2.08 | 2.01 |
| P/S Ratio | 2.1 | 0.8 | 1.5 | 1.2 | 2.1 | 2.4 |
| Div. Yield | 2.5% | 3.7% | 5.7% | 2.5% | 2.6% | 1.6% |
Current ValuEngine reports on these stocks or ETFS can be viewed HERE
Observations
- All four stocks have dividend yields significantly higher than the 1.6% offered by the benchmark ETF, IVV, based upon the S&P 500 Index. The range of these yields is a low of 2.5% (CCBG, OXM) to Laureate Education’s (LAUR) high of 5.7%. Energizer (ENR) was second in this category with a generous 3.7% yield.
- Growth at Reasonable Prices may be best represented by the PEG (Price/Earnings Growth) Ratio which is literally how much the investor is paying for projected earnings growth. LAUR is the clear winner here at 0.24. Capital City Bank Group (CCBG) and Energizer both have PEG Ratios of less than 1 while Oxford Industries (OXM) is just slightly above that. All four are well under the price being paid for earnings growth by investors in IVV. The only one of the ETFs in this article with a PEG not quite as low as the S&P 500 index ETF is Strategic Education (STRA).
- Strategic Education (STRA) has been the top performer in the most recent periods with Laureate Education (LAUR) right behind it. Both are principally online educational companies.
- Looking at conventional valuation ratios, all 5 of these stocks that passed our screen have more reasonable Price/Sales ratios than that of IVV. 4 of the 5 are less expensive as measured by the Price/Book Ratio while the two Educational companies are more expensive if the measurement standard is switched to the Price/Earnings ratio. Additionally, all five are more undervalued according to the ValuEngine comprehensive valuation model.
- Capital City Bank Group (CCBG) has the highest realized one-year return while STRA took honors for best 3- and 6- month returns.
- Those seeking low volatility along with GARP should look into CCBG. It has the lowest Beta and the lowest standard deviation of any of the five stocks in the set. Also noteworthy is its positive one-year return following a period where nearly all other small and midcap banking stocks banks lost between 10% and 50% in the most recent quarter.
- Finally, although the valuation ratios associated with IVV are still high by historical standards, they have come down quite a bit from their highs at the beginning of 2022. In essence and in the wake of general stagnancy last week, this may be a “market of stocks” with good days and bad days for variegated groups of stocks rather than a series of large daily, weekly, and monthly movements that resemble stampedes by cattle herds. This is the type of market where evaluating stocks offering Growth at Reasonable Prices might be especially useful.
_______________________________________________________________________________
By Herbert Blank
Senior Quantitative Analyst, ValuEngine Inc
www.ValuEngine.com
support@ValuEngine.com
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