Getting Reasonable Returns

One lower-risk way to invest in growth stocks is to follow a discipline known as GARP: growth at a reasonable price. You buy growth stocks - companies expected to post above average increases in both sales and profits. However, you take a value-stock approach, looking for situations where the trading price is low, relative to earnings and cash flow.

One factor in GARP investing is the so-called PEG (price/earnings growth) ratio. If a company is increasing earnings per share around 15% a year and it trades at about 15 times expected earnings, this generates a PEG ratio of 1, which may appeal to GARP investors.

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