As if investing weren't challenging enough, the basic investing strategies come with built-in risks. Growth investors risk growth that fails to materialize or continue, sending a stock's high multiple crashing down to earth, a la Crocs (NASDAQ:CROX). Value investors risk business conditions that deteriorate even more, causing earnings and multiples to contract further, a la Citigroup (NYSE:C).  

Happily, there's a middle path. It goes by the funny acronym of GARP, or "Growth At a Reasonable Price." GARP devotees attempt to find companies whose swift growth is not fully priced into their shares. Legendary investor Peter Lynch, the poster-adult of the GARP universe, amassed an extraordinary record at his Magellan fund thanks to this technique.

GARP investing combines the best of both worlds: the earnings expansion of growth investing with the conservatism and discipline of value investing. Better yet, it may help avoid the extreme outcomes that mar the two individual strategies.  

To search for GARP-y companies, start by seeking stocks with high earnings growth rates trading at low price-to-earnings ratios. I used the brilliant screening tool in CAPS, The Motley Fool's interactive stock-rating database, to do just that.

I looked for companies with:

  • The last 3 years' average EPS growth rate greater than 20%.
  • A price-to-earnings ratio less than 15.
  • A price-to-book value ratio less than 2.
  • At least 500 All-Star "outperform" picks.


CAPS Rating (5 Max)

All-Star Outperform Picks

EPS Growth Rate (last 3 Yrs)

Price-to-Earnings (TTM)

Price-to-Book (TTM)

Cemex (NYSE:CX)






Goldman Sachs (NYSE:GS)






Walt Disney (NYSE:DIS)






Aluminum Corp. of China (NYSE:ACH)






Tata Motors (NYSE:TTM)






Source: Motley Fool CAPS as of August 8, 2008. TTM = trailing 12 months.

While these five companies met that screen, don't blindly assume that you should automatically buy them. Before you plunk down your hard-earned cash, you should still do your Foolish due diligence. That said, these stocks could well represent growth and value in five sweet little packages (well, not so little, in the case of Cemex and Goldman Sachs). If the GARP mantra rings true, these stocks could outperform -- even crush -- the market over time.

Feel free to head over to CAPS to screen for more GARP stocks, or to check out what our 115,000 CAPS members have to say about the stocks you own.

Crocs is a Motley Fool Hidden Gems Pay Dirt selection. Tata Motors and Cemex are Global Gains recommendations. Walt Disney and Cemex are Stock Advisor picks, and The Fool owns shares of Cemex. Try any of our Foolish newsletters today, free for 30 days.

Fool analyst Andrew Sullivan likes GARP investing and owns Cemex, but does not have a financial position in any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.