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Jefferies recommends buying these growth stocks with strong earnings momentum at attractive valuations as June kicks off



In a time of uncertainty around interest rate policies and a strong economy, it may be wise for investors to consider buying stocks that offer growth at a reasonable price. According to Jefferies, the best approach for equity investors is to focus on GARP (growth at a reasonable price) stocks, which combine aspects of both growth and value investing. This strategy has proven successful in a market that continues to shift between value and growth based on rate cut expectations. Jefferies’ global head of quantitative strategy, Desh Peramunetilleke, believes that GARP stocks are the ultimate winner in this current market environment.

Jefferies recently shared a list of U.S. stocks that fall into the GARP strategy and have strong earnings momentum. These stocks are seen as offering sustainable outperformance over a longer time horizon. In order to be included on the list, stocks had to meet specific criteria, including being a U.S. company with a market capitalization of at least $2 billion, having an attractive price/earnings-to-growth ratio, strong earnings growth projections, and positive earnings revisions. Some of the stocks that made the cut include streaming giant Netflix, semiconductor company Nvidia, and clothing retailer Abercrombie & Fitch.

Netflix has seen its stock price soar this year, with a price/earnings-to-growth ratio of 0.9. Analysts at Morgan Stanley and Evercore ISI have reiterated their outperform ratings for the stock, citing strong net adds and top-line strength. Nvidia, on the other hand, has surged more than 120% in 2024, with a price/earnings-to-growth ratio of 0.6. Analysts are bullish on Nvidia’s prospects, citing the company’s strong position in the AI space. Abercrombie & Fitch, with a price/earnings-to-growth ratio of 1.2, saw its stock jump 24% after reporting its strongest first-quarter ever, driven by strong sales and profits.

Other stocks on the list include Pinterest, Progressive, and Texas Roadhouse. These companies have met the criteria for GARP stocks and are expected to offer sustainable outperformance in the current market environment. Investors looking for a balanced approach that combines growth and value investing may find GARP stocks to be a winning strategy in a market that continues to fluctuate between growth and value based on rate cut expectations. Jefferies’ recommendation to traverse the middle path and focus on GARP stocks could prove beneficial for long-term investors seeking solid returns.

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