Even with last week’s fall in prices, growth stocks have been the better-performing stocks over the past month. We saw strong year-over-year growth from many companies that reported second results. While this type of growth is unlikely to maintain at its current pace, many companies are still expected to see strong growth over the next few quarters.
However, investors need to be mindful of heightened valuations which is why they should consider a GARP strategy. GARP stands for growth at a reasonable price. This strategy entails investing in stocks that have the potential for growth and trading at discount prices. These stocks can offer quick profits over the near term.
To find GARP stocks with near-term potential, I ran a screen using our POWR Ratings system to find stocks with an overall rating of Buy or Strong Buy, a Growth Grade of A or B, a Value Grade of A or B, and a five year expected EPS growth rate of 20% or higher. I narrowed down that list to three stocks I feel have the best prospects, which include Westlake Chemical Corporation (WLK), ManpowerGroup (MAN), AutoNation, Inc. (AN).
Westlake Chemical Corporation (WLK)
WLK is a vertically integrated manufacturer and marketer of basic chemicals, vinyls, polymers, and building products. Its products are used for flexible and rigid packaging, automotive products, coatings, water treatment, refrigerants, residential and commercial construction. The company operates in the business segments of Olefins and Vinyls.
The company is seeing strong demand for its products. For instance, it is witnessing solid momentum for polyethylene. Management expects this demand to continue due to its focus on specialty applications, including food packaging and healthcare. WLK has also seen strong demand for PVC resin and downstream building products, with the economy opening up from COVID restrictions.
The firm’s downstream vinyl products business and the domestic demand for PVC are gaining strength in residential construction activities due to rising housing starts. In addition, with people continuing to spend on repair and remodeling activities, the company should see strong demand for some time. Plus, tight supply conditions should support elevated prices and margins in the short term.
WLK has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Growth Grade of B as EPS is up 139.4% over the past year, while EBITDA is up 66.8% over the same period. Analysts expect earnings to rise 485.9% year over in the current quarter and an average of 49.7% a year for the next five years.
WLK also has a Value Grade of B due to its low valuation metrics. For example, the company has a trailing P/E of 11.92 and a forward P/E of 8.70. We also provide Momentum, Stability, Sentiment, and Quality Grades for WLK, which you can find here.
WLK is ranked #8 in the A-rated Chemicals industry. For more top stocks in this industry, click here.
MAN is one of the biggest companies in the global staffing industry. It serves each main staffing category–temporary, permanent, and project-based, and offers a suite of HR outsourcing and outplacement services.
It provides its staffing solutions through its four major brands – Manpower, which includes contingent staffing and permanent recruitment; ManpowerGroup Solutions, outsourcing services for large-scale recruiting; and Experis, professional resourcing and project-based workforce solutions.
One of the significant problems in the economy right now is the huge labor shortage. However, this has been a boon to staffing companies such as MAN that gets hired to find workers. The company is also benefiting from the shift toward outsourcing recruitment as employers look to optimize labor efficiency and manage expenses.
In addition, MAN has been looking to increase productivity and efficiency by making investments in technology. For example, it is implementing front office systems and cloud-based and mobile applications. The company is also making enhancements to its global technology infrastructure across several of its markets and investing in the digitalization of its workforce solutions.
The company has an overall grade of A and a Strong Buy rating in our POWR Ratings system. MAN has a Growth Grade of A, which isn’t surprising as earnings are up 25.6% over the past year. Earnings are forecasted to rise 58.3% year over year in the current quarter and 35.45% a year over the next five years.
The company also has a Value Grade of A as its forward P/E is only 13.70. Its price-to-sales ratio of 0.3 is also quite low compared to the industry average of 2.2. For the rest of MAN’s grades (Momentum, Stability, Sentiment, and Quality), click here.
MAN is ranked #6 in the A-rated Outsourcing – Staffing Services industry. For more top-ranked stocks in the top-rated industry, click here.
AutoNation, Inc. (AN)
AN is the largest automotive dealer in the United States, with 230 dealerships and over 300 locations. In addition, the company has six AutoNation USA used-vehicle stores, four auction sites, and 74 collision centers across 16 states. These are primarily in Sunbelt metropolitan areas. AN also sells used vehicles, parts, repair services, and auto financing.
Even with production issues, auto sales have been up as many consumers are avoiding public transportation. Consumers have also been encouraged to buy cars due to fiscal stimulus measures and low rates. Plus, the disruption of supply chains due to the semiconductor shortage has resulted in a short supply of new vehicles.
That means the prices for used cars have gone through the roof. This has certainly benefited AN. There is enormous upside potential for the company’s AutoNation USA stand-alone used-vehicle stores. The company plans to open at least 95 more by 2030. AN also has a sizable dealer network, enabling it to relocate its inventory to better meet demand.
In addition, its digital AutoNation Express service makes shopping at its stores more attractive than shopping at other dealers. AN has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. The company has a Growth Grade of B as earnings per share have grown an average of 23.9% per year over the past five years.
The next five years look just as bright as analysts expect earnings to rise 20.2% per year. AN also has a Value Grade of A as both its trailing and forward P/Es are below ten. To access all of AN’s grades, including Momentum, Stability, Sentiment, and Quality, click here.
AN is ranked #2 in the B-rated Auto Dealers & Rentals industry. For more top stocks in this industry, make sure to visit this link.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years
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WLK shares were unchanged in after-hours trading Monday. Year-to-date, WLK has gained 7.51%, versus a 20.23% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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