4 GARP Picks to Shield Your Portfolio From September Meltdown

The already muted month of September witnessed another day of Wall Street meltdown yesterday. The Dow Jones Industrial Average fell as much as 509.72 points or 1.8%. The S&P 500 and Nasdaq Composite dived 1.2% and 0.1%, respectively on Sep 21, lower than the previous day’s close. This was the fourth straight day of losses for the S&P 500.

Although technology stocks registered a last-hour rebound from their earlier week’s losses (primarily on growing positive market sentiment related to Microsoft’s plan of $7.5 billion acquisition of ZeniMax), they could not offset the collective sharp fall in stocks of major healthcare and financial benchmark participants yesterday.

The Economic Unrest at a Glance

The new wave of coronavirus cases in the United States following a rushed ‘unlocking’ and the forecast of a significant fall in global GDP in 2020 has pushed the market into sell territory so far in September. This has resulted in another slew of fresh layoffs.

The September data by the Department of Labor showed that from mid-March through late August, 59.3 million Americans filed for unemployment insurance. The number of insured unemployed workers was 13.3 million in late August. Though this was lower than the peak achieved in mid-May (25 million), the figure still exceeds majority of the market watchers’ initial projection as they had expected a faster broad-based recovery.

The Fed’s last-week’s economic outlook (that signaled that interest rates are likely stay near zero through 2023) along with the grim pandemic scenario in Europe played a crucial role in dragging market sentiment down.

Added to this, the President’s recent plans to introduce a stimulus bill of a massive $1.5 trillion are also indicative that an economic recovery is unlikely any time soon. In this regard, we note that, the International Monetary Fund’s (IMF) estimate about the coronavirus-induced cumulative stimulus package was $18 trillion globally for 2020. The United States’ already-running stimulus packages currently occupy 13.2% of its GDP. This is undoubtedly going to create further pressure on the Federal Reserve balance sheet.

The Contrary Story

Amid these, the U.S. Bureau of Labor Statistics’ September-released data was positive, claiming a 1.4% improvement in non-farm employment, reduction in the total number of unemployed Americans to 13.6 million and lowering of the unemployment rate to 8.4%.

Needless to say, the contrasting economic data has completely baffled the investment world.

GARP — An Effective Investment Strategy

It is quite clear that the volatility is likely to persist, given the broad global economic uncertainty. That said, investors with a longer-term horizon may want to buy some growth-focused stocks that are available at discounted prices right now due to the ongoing market sell offs.

Here, we are talking about a hybrid investment strategy called GARP (growth at a reasonable price). Often known as a special case of growth and value investments, GARP helps to find out stocks with solid long-term prospects that have become absurdly cheap amid economic woes.

To narrow down the list, we have selected those with a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

4 Top Picks

DaVita Inc. DVA: DaVita is set to gain significantly from dialysis services in 2020. The acquisition of several dialysis centers overseas is encouraging. Net dialysis and related lab patient service revenues is seeing an uptick even amid the pandemic. Also, solid prospects in the Kidney Care wing aid the stock.

This Zacks Rank #1 stock has a VGM Score of A. Apart from a discounted PEG and P/E, the stock also has an impressive long-term expected growth rate of 11.9%.

DaVita Inc. Price

DaVita Inc. Price

DaVita Inc. price | DaVita Inc. Quote

Lennar Corporation LEN: Similar to other public builders, Lennar witnessed a pause in homebuyer demand in mid-March that extended through the end of April due to widespread stay-at-home orders and surging national unemployment. Since then, new single-family homes demand has seen a V-shaped recovery throughout the country and Lennar is in a prime position to benefit from the same. A combination of lower interest rates and slower price appreciation has positively impacted affordability, thereby helping the company to deliver solid performance.

This Zacks Rank #1 stock has a VGM Score of B. Apart from a discounted PEG and P/E, the stock also has an impressive long-term historical growth rate of 15.7%.

Lennar Corporation Price

Lennar Corporation Price

Lennar Corporation price | Lennar Corporation Quote

PACCAR Inc. PCAR:  One of the leading names in the trucking business, PACCAR offers a wide range of trucks that carry a solid reputation in terms of quality and reliability. This consistency in product quality has allowed PACCAR to gradually increase its market share globally over time. The company has navigated many cycles and is expected to manage well through the ongoing downturn, given its reputation for quality and leading brands namely Kenworth, Peterbilt and DAF.

The stock carries a Zacks Rank #2 has a VGM Score of B. Apart from a discounted PEG and P/E, the stock also has an impressive long-term historical growth rate of 12%.

PACCAR Inc. Price

PACCAR Inc. Price

PACCAR Inc. price | PACCAR Inc. Quote

Masco Corporation MAS: For this home improvement and building products maker, while higher pricing (in order to mitigate tariff-related woes) may have had a temporary impact on volume, repair and remodel activity is poised to pick up pace once the COVID-19-induced slowdown phases out. This will drive demand. Notably, the repair and remodeling industry now represents approximately 90% of its business.

This Zacks Rank #2 stock has a VGM Score of B. Apart from a discounted PEG and P/E, the stock also has an impressive long-term historical growth rate of 17.6%.

Masco Corporation Price

Masco Corporation Price

Masco Corporation price | Masco Corporation Quote

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PACCAR Inc. (PCAR): Free Stock Analysis Report
DaVita Inc. (DVA): Free Stock Analysis Report
Masco Corporation (MAS): Free Stock Analysis Report
Lennar Corporation (LEN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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