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Why Investors Should Consider a Long-Term Strategy
Growth at a Reasonable Price
According to BMO Capital Markets, investors should shift their attention towards a long-term strategy after the artificial intelligence craze helped fuel a comeback rally for stocks in the first half of the year. Chief investment strategist Brian Belski suggests that "growth at a reasonable price" (GARP) stocks should be key holdings of the riskier portion of an investment portfolio. GARP stocks have characteristics of both growth and value factors, and Belski believes that these strategies tend to perform better over longer periods compared to singularly focused growth or value strategies.
An Entry Point for GARP Stocks
As optimism about the U.S. economy has improved, the gap between earnings growth expectations for GARP companies and the broader market has shrunk, leading to a more favorable backdrop for GARP stocks. Belski notes that even with the slight deterioration in relative earnings growth, the price-to-earnings-growth ratio has declined sharply and is only slightly above a historically low level. This suggests that now may be a good entry point for GARP stocks, which have struggled so far in 2023.
BMO's List of GARP Stocks
BMO Capital Markets has compiled a list of stocks that fit the GARP profile and have outperform ratings from the firm's analysts. These stocks come from various sector groups and have had varying degrees of success so far this year. For example, DXC Technology shares are up 4.5% for the year, while the Technology Select Sector SPDR Fund (XLK) is up more than 40%. PayPal's year-to-date gains of about 3.9% slightly outperform the broader financial sector. However, there are stocks like Oil stock SLB and insurance stock Travelers that have not kept up with their peers.
Wall Street Sentiment and Performance
Wall Street analysts generally have a positive view of SLB, with about 90% of analysts giving it a buy or strong buy rating. However, the stock is up less than 7%. On the other hand, Travelers is down more than 7% for the year, and the majority of analysts have assigned hold ratings to the stock.
In conclusion, BMO Capital Markets recommends a long-term investment strategy that includes GARP stocks, which have characteristics of both growth and value factors. Despite their underperformance in 2023, Belski believes that this may be a good entry point for GARP stocks. Investors should consider BMO's list of GARP stocks, understanding that their performance varies across sectors. It's also important to take into account Wall Street sentiment towards these stocks and their corresponding performance.
Hot Take: How This Topic May Impact a New Business
For new businesses looking to attract investors, understanding the current investment landscape is crucial. With BMO Capital Markets recommending a long-term investment strategy that includes "growth at a reasonable price" (GARP) stocks, it is important to recognize the potential impact this strategy may have on a new business seeking funding.
Embracing a long-term strategy aligns with the idea of building sustainable growth rather than pursuing short-term gains. This can be appealing to investors who are looking for companies that have a solid foundation for future success. By positioning your new business as a GARP stock, focused on both growth and value factors, you can capture the attention of investors who are seeking stability and long-term potential.
Furthermore, as BMO notes that now may be a good entry point for GARP stocks, it presents a unique opportunity for new businesses to position themselves as attractive investment options. By highlighting the growth potential and reasonable valuation of your business, you can differentiate yourself from other companies that may be solely focused on rapid expansion or undervalued assets.
However, it is important to recognize that not all sectors may perform equally in the GARP strategy. Analyzing BMO's list of GARP stocks and understanding their performance across sectors can provide insights into which sectors are thriving and which may present challenges. This information can help new businesses align their offerings with sectors that are currently performing well, increasing their chances of attracting investor interest.
In conclusion, by adopting a long-term investment strategy and positioning your new business as a GARP stock, focused on growth and value factors, you can appeal to investors seeking stability and sustained growth. Analyzing sector performance and understanding market sentiment can further enhance your strategy. With careful consideration and strategic positioning, your new business can become an attractive investment opportunity in the eyes of potential investors.
Article First Published at: https://www.cnbc.com/2023/07/30/this-could-be-the-right-time-to-buy-these-growth-at-a-reasonable-price-standouts-bmo-says.html