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TheBarnacle (87.52)

GARP for the long haul

Recs

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March 08, 2011 – Comments (7) | RELATED TICKERS: BVN , SCHN , CEO

I am strictly a GARP trader, and tend to buy and hold for a long time, sometimes for five years.  I first entered The Fool on Ocotber 30, 2006.  On that day, I said the following stocks would outperform the market (S&P 500 average is -1.15% since then):

BVN (34.5%), CECO (1.28%), CEO (28.26%), CHS (-12.32%), CRYP (-49.45%), EOG (11.71%), ERES (-3.97%), HWAY (-22.23%), MMSI (2.09%), NTE (-10.14%), ODSY (16.40%), RECN (-8.56%), RMD (8.81%), SCHN (15.10%), SSD (-0.28%), UNT (5.89%), URBN (19.14%)

Delisted stocks included BSTE and HYDL, which outperformed the market by whopping margins before they were bought out (178.16% and 189.6% annually respectively). 

If one were to have bought these stocks on 10/30/2006 and held them to present day, or when they were sold out, s/he would have realized an 83% profit versus a 4.2% loss compared to the market.

This is just a small sample, but it is a smart and less stressful way to go.

7 Comments – Post Your Own

#1) On March 08, 2011 at 2:37 PM, chk999 (99.98) wrote:

What's your methodolgy for finding GARP candidates?

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#2) On March 08, 2011 at 3:27 PM, griderX (95.33) wrote:

I like GARP investing as well.  One of the screens I use as a starting ing filter is below:  I may add some additional statistics or tweak the numbers up or down to increase or decrease my universe of securities.

Sec Market Value (USD)1 Year Growth Total Sales>20Net Sales>100M5 Year Growth Total Sales AVGGross Margin>40Net Margin>15Total Debt% Total Equity<50Current Ratio>1.0Return on Equity>15Price / Earns Div YldPEGusingFY2EstPrice /Sales CFY

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#3) On March 08, 2011 at 4:25 PM, Valyooo (99.58) wrote:

I kinda think GARP is a BS term.  Why would you buy a company that 1) you expected no growth from  2) you considered to be unreasonably expensive?  You wouldn't, therefore every stock investment anybody buys is GARP

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#4) On March 08, 2011 at 5:21 PM, TheBarnacle (87.52) wrote:

I like to look at historical growth rates and returns.  I use a basic rubric and compare it to the P/E (ttm).  I don't believe using future earnings, because who can predict that with any accuracy.  This is very important, though, I have a very strict matrix that the companies have to have little or no debt, lots of cash flow, and a high quick ratio.  Since this is The Motley Fool site, a minimum daily dollar value is incorporated to ensure daily liquidity.

As for GARP being a BS term, for me it's just another way using a PEG ratio, but using other determinants to make sure the investment has a margin of safety.  The companies have to have real sales and real cash on hand.  Mr. Market has been known to overspend on stocks that have no record of growth.  Does Pets.com ring a bell?

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#5) On March 08, 2011 at 5:52 PM, Valyooo (99.58) wrote:

I know what you are saying, and I like PEG ratio, but saying something like "I like GARP" is like saying "I like to invest in good Stocks".  A company with no cash on hand could still be growing revenue.

This was not meant as a shot at you by the way, more of a shot at GARP.  I know what you mean, I just think the term is over used.

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#6) On March 08, 2011 at 6:20 PM, TheBarnacle (87.52) wrote:

I think the concept of GARP instills a discipline that keeps one from overpaying on a stock. Too many folks tend to arrive at the party as the lights are being turned out.

No offense taken.

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#7) On March 09, 2011 at 9:40 AM, griderX (95.33) wrote:

Valyooo - Regarding the usage of the term GARP...it represents a cetain investment style or universe of securities you tend to focus your efforts towards.

Therefore it limits your universe of securities....I guess your typical GAPR investor is not willing to purchase a company trading at 15+ times sales or forward and trailing multiples of 100+, if growth was, and is expected to be only in the range of 30+.  A perfect example of a stock I love but would not touch is ARMH, I think the company has very intresting potential...but I would not tocuh it at these levels.   

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