These GARP stocks (growth at a reasonable price) have the benefit of both worlds. They are value-priced stocks with good, positive earnings prospects going forward.
That doesn’t usually happen. Often the market will bid up the prices of stocks with consistent and high-flying growth prospects. But times are not normal now. This provides unique opportunities in GARP stocks.
Moreover, many of these stocks pay dividends and some even buy back their own shares. Both are ways that these companies return capital to investors. This is typical of value stocks (as opposed to growth stocks, which will retain their earnings to use in the growth prospects of the company).
Let’s dive in and look at these GARP stocks:
| OVV | Ovintiv | $56.44 |
| MMI | Marcus & Millichap | $41.99 |
| CVE | Cenovus Energy Inc | $22.67 |
| SSL | Sasol Limited | $26.10 |
| NRG | NRG Energy | $46.45 |
| WEX | Wex | $169.23 |
Ovintiv (OVV)
Market Cap: $14.6 billion
Ovintiv (NYSE:OVV) is a major oil and gas producer based in Denver, CO. Sales are forecast to grow 8% from $10.18 billion this year to $11.01 billion next year. In addition, EPS is forecast to grow 33% from $10.57 per share to $14.11 in 2023.
At $56.44, Ovintiv has a forward P/E of just 4 times forward earnings for 2023 (i.e., $56.44/$14.11). This makes it one of the most undervalued GARP stocks.
Moreover, the company pays an annual dividend of $1. That gives it a decent dividend yield of 1.8%. It has paid a dividend each year for the past 32 years and raised it each year for the past four years.
Additionally, Ovintiv has been buying back its stock for the past two quarters. It bought $182 million in the past six months ending March 2022. On an annualized basis, that represents 2.5% of its $14.6 billion value.
Therefore, the company returns capital through a 2.5% buyback yield in addition to its 1.8% dividend yield. That gives it an 4.3% total yield.
Marcus & Millichap (MMI)
Market Cap: $1.6 billion
Marcus & Millichap (NYSE:MMI) is a California-based real estate brokerage firm that trades very cheaply with good growth prospects. Earnings are forecast to grow 23% next year, starting from $3.74 in earnings per share (EPS) projected this year to $4.61 in 2023. At $41.99, it puts MMI stock on a forward P/E multiple of just 9.1x.
Moreover, the company pays a modest semi-annual dividend of 25 cents. That gives it a decent dividend yield of 1.2% (i.e., $0.50/$41.99). However, it also paid out a special dividend of $1 per share, giving MMI stock an extra yield on a one-time basis of 2.4%.
Do keep in mind, however, that there is no guarantee it will keep paying the special dividend.
Cenovus Energy (CVE)
Market Cap: $42.1 billion
Cenovus Energy Inc (NYSE:CVE) is a Calgary, Canada-based oil and gas company that will show 10% growth next year based on analysts’ expectations. They forecast EPS to grow from $2.86 to $3.15 per share in 2023.
At $22.67, CVE stock is trading at a forward P/E of just 7.2 times based on its 2023 earnings projections. That is cheap for a company with this solid 10% earnings growth prospects.
Moreover, Cenovus pays a variable dividend each quarter. Recently it declared a 10.5 cents Canadian dividend for Q2, which works out to about 8.22 U.S. cents. Annually that is 32.88 cents and works out to a dividend yield of 1.5%. But each quarter, the dividend yield will change with the quarterly declaration.
Sasol Limited (SSL)
Market Cap: $16.6 billion
Sasol Limited (NYSE:SSL) is a South African integrated chemical and energy company. It’s based in Johannesburg with exploration and production locations in Mozambique, South Africa, Canada, and Gabon.
Analysts expect its earnings will rise 15% next year from $3.96 per share in the year ending June 30, 2022, to $4.54 in June 2023. At $26.10, SSL stock is now on a forward P/E multiple of 5.7 times.
Given its earnings growth and low P/E multiple going forward, the stock is one of the best GARP stocks on the list.
NRG Energy (NRG)
Market Cap: $11 billion
NRG Energy (NYSE:NRG) is a Houston-based integrated power company. It is one of the largest U.S. independent power producers. It has 7 million customers and generates 18 gigawatts of power generation capacity primarily in Texas.
NRG stock is attractive to bargain-focused investors as it offers a 3% dividend yield and nine years of continuously paid dividends.
Moreover, analysts forecast $3.80 in EPS this year and $4.25 next year. So, trading at $46.45, NRG stock trades for 12.2 times earnings this year and 11.9 times 2023 earnings estimates.
Moreover, the company has plenty of FCF to cover both its dividends and buyback programs. Last year it generated $493 million in cash flow from operations and paid out just $319 million in dividends plus $48 million in buybacks.
This makes this utility stock one of the best GARP stocks.
Wex Inc (WEX)
Market Cap: $7.1 billion
Wex, Inc (NYSE:WEX) is a fleet solutions and travel and health benefits firm with good sales growth prospects. After growing 18% this year, they are forecast to rise 7.8% next year.
In addition, analysts forecast that its earnings will rise 8.8% next year. EPS of $12.66 this year is forecast to rise to $13.78 in 2023. At $169.23, it is cheap, trading at just 12.2x earnings.
Although Wex does not pay a dividend, it has been buying back its own shares. That is another way that the company can return value to its own shareholders.
That makes it one of the best GARP stocks since it has a good earnings forecast and a low P/E multiple.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
