CHICAGO, March 4, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Monro Muffler Brake (Nasdaq: MNRO), Carbo Ceramics (NYSE: CRR), Vitamin Shoppe (NYSE: VSI), Radware (Nasdaq: RDWR) and Brigham Exploration (Nasdaq: BEXP).
5 Growth Stocks Trading at a Bargain
Investing in growth stocks is a tried and true investment style, but combining that with certain value principles can take it to the next level. Essentially, the GARP philosophy is the practice of finding stocks with above average growth rates and below average valuations.
Stocks with high growth rates can justify a higher than normal P/E ratio, but by dividing the P/E by the expected growth rate (PEG ratio), we want to make sure that it is within reason. While there are no strict criteria to abide by, the rule of thumb is to find a PEG ratio of 1.0 or less.
Stocks that Make the Grade
Here are a few examples of stocks that have above average growth rates, trade at a discount and have a Zacks #2 Rank (Buy) or better.
Monro Muffler Brake (Nasdaq: MNRO) operates a chain of automotive repair and tire services in the U.S. under several different brands across its 783 stores.
MNRO is currently a Zacks #2 Rank (Buy) that trades with a forward P/E around 22 times. That figure wouldn't make it past just about anyone screening for a good price to earnings multiple.
However, its expected earnings growth for the next 3-5 years is just over 25%, bringing the PEG ratio to roughly 0.9. A prime example of a growth stock that justifies a higher P/E, but is still considered a value.
Carbo Ceramics (NYSE: CRR) supplies ceramic proppant, which is used in the fracturing process for oil and gas wells. They also offer other related services.
The company's expected long-term growth rate of 35% would be fantastic, and with a PEG ratio of 0.8 times it is coming at a very attractive price here. Estimates have been consistently rising over the past 3 months, which helps propel it to a Zacks #1 Rank (Strong Buy).
Vitamin Shoppe (NYSE: VSI) is a retailer and direct marketer of vitamins, supplements and other specialty health products.
This Zacks #2 Rank (Buy) is expected to grow its earnings by 25% over the foreseeable future. That should help swallow the pill of buying a stock with a P/E ratio just above 23 times.
Radware (Nasdaq: RDWR) offers application delivery and network solutions to banks, insurance companies, government agencies and other customers.
Specialized tech companies are usually the bane of a value investor's existence. So there it would be tough to sell them a stock trading with a forward P/E north of 34 times. But let someone know that it comes along with an expected growth rate of 35%, a PEG of 1.0, and it starts to look like a reasonable price for a Zacks #2 Rank.
Brigham Exploration (Nasdaq: BEXP) is an independent exploration, development and production company that seeks onshore domestic oil and natural gas reserves.
After reporting record production volumes, revenue and operating income, estimates started moving higher. Now the company is expected to grow about 40% a year for the next few years. That is enough to justify a forward P/E of 32 times, because the PEG ratio is at 0.8.
Best of Both Worlds
There are plenty of people from both the value and growth camp that will vehemently argue their points on which is better. I say; why not capitalize on the best of both worlds?
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. The company continually processes stock reports issued by 3,000 analysts from 150 brokerage firms. It monitors more than 200,000 earnings estimates, looking for changes.
Then when changes are discovered, they're applied to help assign more than 4,400 stocks into five Zacks Rank categories: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock picking system; the Zacks Rank, continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter Profit from the Pros. In short, it's your steady flow of profitable ideas GUARANTEED to be worth your time. Get your free subscription to Profit from the Pros at: http://at.zacks.com/?id=7298
Follow us on Twitter: http://twitter.com/ZacksResearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
SOURCE Zacks Investment Research, Inc.