Investing in growth companies is a strategy that has paid off well over many years. Since 2009, growth stocks have broadly outperformed value stocks. The Russell 1000 Growth Index has returned nearly 1,200% since 2009, while the Russell 1000 Value Index has returned over 500%. However, even when investing in growing companies, looking for value still applies. That’s where the idea of growth at a reasonable price (GARP) comes into play. This style of investing looks to find stocks that look cheap compared to their expected growth.
A key to determining this is using the PEG ratio. The PEG ratio divides a stock’s forward price-to-earnings (P/E) ratio by its projected earnings growth rate. A number under 1 means the market is paying less per expected dollar of earnings than the projected growth rate suggests it should. Based on this, there is reason to believe the stock is undervalued. Other metrics to consider are the company's P/E ratio versus its industry, a strong return on equity (ROE), and projected earnings growth.
Here are three companies that score well based on these criteria to consider.
1. Aptiv: Auto-Parts Company with Strong Upside Potential
Aptiv PLC (NYSE: APTV) is a maker of automotive components like connectors, housings, and wiring assemblies that let different vehicle parts interact. Aptiv's stock price has been sliding for three years despite growing its revenue by 10% annually over the period. Going forward, its revenues are not expected to grow quickly, but its earnings are.
Projections show earnings increasing by over 16% in both 2025 and 2026. Despite this, it is trading at a forward P/E ratio of just 8.2x, which is below the industry median. Yet analysts project that earnings growth will be the second highest among Aptiv's eight competitors. This results in the company trading at a PEG ratio of just 0.6. Its ROE of 24% also ranks second in the group.
Despite the stock's slide and falling price targets, analysts still see solid upside. The company’s 12-month price target of over $78 implies a 40% upside. However, one issue to watch out for with Aptiv is its excessive debt of over $10 billion. Fitch Ratings places a BBB credit rating on the firm, which indicates that its credit quality is good, but not great.
2. Allstate: Insurance May Be Boring, but This Earnings Growth is Not
Allstate Insurance (NYSE: ALL) currently fits into the description of a GARP stock. The financial stock is up by a very nice 43% in 2024, but still appears to be trading cheaply compared to its projected earnings growth. The company’s adjusted earnings per share (EPS) are forecast to grow 18% and 11% in 2025 and 2026, respectively. However, its forward P/E ratio is just 11x, slightly below the middle of its industry. Additionally, its ROE is in the top 25% of its industry. Currently, its PEG ratio is less than 0.1.
Analysts are projecting increased profitability in the non-life US insurance industry. Combined ratios are coming down from their elevated 2023 levels. The combined ratio measures what percentage of the premiums an insurance company receives that it must pay out in claims. A combined ratio above 100% suggests it is losing money on its underwriting. Deloitte says that slowing inflation should help stem the increase in the cost of claims.
3. Barrick: Gold Miner Improving Production Issues at Key Facility
Traditionally, Barrick Gold (NYSE: GOLD) would not be considered in a GARP discussion. However, the strong uptick in the price of gold changes that—at least for now. In 2024, gold futures are up 25%, tied for their best calendar year return since 2010. If the company’s Q4 earnings come in as expected, its adjusted EPS will have risen by 46% in the year. Analysts are expecting that growth to accelerate further in 2025 to 49%. In 2025, analysts expect revenue growth to hit the highest level in four years. With just a 9x forward P/E ratio, the company’s PEG ratio is just 0.3, one of the lowest in the metals and mining industry.
Barrick stock really hasn’t been able to capitalize on the rising gold price this year due to issues with its production. The company’s massive new mine expansion of the Pueblo Viejo mine started off slow, but things are improving. Production increased by 23% from Q2 2024 to Q3. The average analyst price target implies a 42% upside in the stock.
