As an investor, how can you buy good stocks at bargain prices?
One way is to wait for the companies to tank from falling profits or some other market disappointment and then scoop them up. It doesn't happen all the time, but occasionally the market will beat down a stock on some short-term situation. This has happened with Coca-Cola Amatil Ltd (ASX: CCL) as it is going through a restructuring.
Trying to catch high performers in a similar way is harder. They might come down a little, but then take off from there, never to return to those lower prices again.
That's why investors need to think about GARP. Not the movie, but "growth at a reasonable price". Because we are long-term investing Fools, we consider what the company might be earning years from now. It may seem a little pricey now, but a fast-growing stock may be much higher in 5 – 10 years. The "bargain" comes out over time because we seized the value even though the price seemed high.
Here are two stocks with solid growth records and expanding businesses that I think offer what we are looking for: GARP.
— Greencross Limited (ASX: GXL), the veterinary service and pet care supplies company which owns the Petbarn store chain, has declined from about $11 to $8 a share since late August. The fast-growing company hasn't slowed its expansion and earnings are up since the Petbarn acquisition. It also bought up rival City Farmers, an animal supplies business, in July 2014.
The stock may just be "taking a breather" after a strong run-up since early 2012. However, the growth potential over the next several years is still very attractive. It has increased its total stores and clinics to 181 and 116, respectively. Consensus earnings growth forecasts are around 20% annually for the next two years. Even though its 23 PE is near the high end of its past PE range, it seems like a reasonable price multiple for strong growth.
— SEEK Limited (ASX: SEK) is the kind of growth stock that could fit into most portfolios. The company's growth profile is attractive because it has a firm plan to become a leading job placement and educational training company in a number of developing places like South East Asia, Africa, Brazil and Mexico.
It has been consistent in earnings growth, averaging over 20% annually in recent years and is forecast by analyst consensus to continue that trend over the next several years. Its overseas business as well as its education division are showing robust earnings growth rates. Trading at around 31 times earnings, that is also reasonable for a fast grower like SEEK.
