Growth at a reasonable price - why GARP strategies have soared this summer

Monday, Sep 02 2013 by
Growth at a reasonable price  why GARP strategies have soared this summer

Investing strategies that target so-called ‘growth’ companies have emerged this summer as some of the best performers of all the approaches we track at Stockopedia. And despite August being a usually quiet month for the market, the recent share price movements of a handful of companies have driven some of these growth strategies even further. 

Last month we gave a nod to GARP strategies – or Growth At a Reasonable Price – as some of the best performing GuruModel screens during the mid-year. After several months in which value and price momentum had produced the best returns, attention was clearly beginning to switch to strategies that focus on keenly priced stocks offering earnings growth and improving margins. In conditions where value opportunities are thin on the ground, investors willing to raise their standards and pay a bit more for shares with strong growth characteristics, GARP investing is looking like an effective tactic. 

Perhaps the most famous of these strategies to have recently found a sweet spot in the investing cycle is Jim Slater’s Zulu Principle. Jim Slater’s 1990’s book of the same name explained how to pick potential winners by selecting stocks that are undervalued relative to their growth rate. He illustrated a shorthand to this process whereby investors could hunt for stocks with a PEG ratio (or Price Earnings to Growth ratio) of less than one.  Stockopedia’s implementation of this strategy has produced a 3-month return of 21.5% against the FTSE 100, which has fallen by 5.2% over the same period.  It has picked up companies including Brammer (LON:BRAM), the manufacturing components supplier, which has seen its share price jump by 40% to 455.9p since the beginning of July when it reported that its growth initiatives were bearing fruit. 

Elsewhere, the current Zulu portfolio also includes stockbroking firm Jarvis Securities (LON:JIM), where the shares have risen by 39% to 400p over two months following its best ever set of half-year results. Interestingly, the shares saw a pronounced rise in early August, coinciding with rule changes that now allow AIM-quoted stocks like Jarvis to be acquired using a tax-efficient ISA wrapper. More generally, that change has had a positive early impact on AIM, which after a lacklustre year has actually gone on to outpace the otherwise impressive performance of the FTSE…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

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Rubix Group International Limited is a United Kingdom-based supplier of industrial maintenance, repair, and overhaul (MRO) products and services. The Company is a authorized distributor for branded MRO products and its portfolio includes transmission and automation, fluid power, machining, assembly, tools and protective equipment. The Company serves various industries, such as automotive, cements and aggregates, chemicals, glass, food and beverages, power and utilities, industrial engineering, metals, recycling, pulp, paper and packaging and transport. more »

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Jarvis Securities plc is a United Kingdom-based holding company. The Company is engaged in the provision of stock broking services and all revenue is derived in the United Kingdom. It provides retail execution-only stockbroking, Individual Savings Account (ISA) and Self Invested Personal Pension (SIPP) investment wrappers, savings schemes, and financial administration, settlement and custody services in all these areas to other stockbrokers and investment firms, as well as individuals. It offers Dial-n-Deal - for clients wanting to open an account over the telephone and sell shares in certificated form. Its is a share sale postal service. It also offers outsourced services to investment professionals and other financial intermediaries. Its subsidiary, Jarvis Investment Management Ltd, is an outsourced investment administration and Model B settlement services provider. more »

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STV Group plc is a United Kingdom-based digital media company. The Company is engaged in the production and broadcasting of television programmes, Internet services and the sale of advertising airtime and space in media and lottery management services. It operates through four divisions: Broadcast, Digital, Production and external lottery management (ELM). Its Broadcast and Digital divisions deliver content to attract audiences across multiple platforms which are sold to advertisers. Its Production division produces content for broadcast networks in the United Kingdom and overseas. It is also engaged in charitable activities. Its ELM division provides operational services, such as ticket sales and marketing to charitable society lottery, Scottish Children's Lottery. The Company's subsidiaries include STV Central Limited, STV North Limited, STV Productions Limited, Scottish News Network Limited, STV Publishing Limited, STV Out of Home Limited and STV Appeal Trading Company Limited. more »

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  Is LON:BRAM fundamentally strong or weak? Find out More »

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About Ben Hobson

Ben Hobson

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