A little richer feast of picks for the value investors

MOST of the stocks I own for clients are value stocks, selling for 15 times the company’s earnings or less. But there is room in my heart — and in my portfolio — for a few GARP stocks. GARP stands for growth at a reasonable price. It’s the middle ground between value investing (bargain hunting) and growth investing (seeking companies whose earnings are growing rapidly).

Once a year at Thanksgiving time, which after all is time to loosen one’s belt, I devote this column to a few GARP picks that I think are worthy of consideration. These stocks sell for 15 to 20 times per-share earnings, a little more than I normally would pay but not exorbitant.

Applied Materials

We live in a world where semiconductors have more and more uses: computers, smartphones, cars, dishwashers, ovens, home security systems and many more. That bodes well for Applied Materials Inc. (AMAT), one of the largest suppliers of equipment to semiconductor companies.

At about $77 a share, Applied Materials sells for 19.6 times earnings, which is at the top of my GARP range. But look at its growth. Earnings have grown at a 26 percent pace the past five years, and 37 percent in the past four quarters.

Timken

The Timken Co. (TKR) has amazed me for years. Its main product, ball bearings, couldn’t be more prosaic. But Timken has advantages over its competitors in quality control and economies of scale. It has shown a profit in 14 of the past 15 years and high profits lately.

Ciena

Ciena Corp. (CIEN), based in Hanover, Maryland, makes optical telecommunications network equipment. AT&T, Century Link and Verizon all buy its equipment.

Ciena’s stock was above $60 as recently as August. It has dropped to around $42. CEO Gary Smith warned in September that he sees a “broadbased” slowdown in orders over the next few quarters.

Despite his pessimistic forecast, Smith said that Ciena has been gaining market share from competitors.

Health Care Services

Hospitals and nursing homes need laundry, housekeeping and food service. That’s what Health Care Services Group (HCSG) provides. The Bensalem, Pennsylvania, company first hit $1 billion in sales in 2012 and cracked the $2 billion barrier in 2018. Lately, it’s running at a pace of about $1.8 billion.

The company’s earnings history is spotty, but there are two strong points. The dividend yield is 3.6 percent. And the company carries debt of less than 3 percent of stockholders’ equity.

Louisiana-Pacific

Homebuilders originally relied entirely on wood, then found that plywood is cheaper and better in some applications. Louisiana-Pacific Corp. (LPX) invented oriented strand board, an alternative to plywood, and specializes in producing it. It contains wood chips arranged (oriented) to increase strength.

It’s fair to admit that the company’s earnings are erratic. But lately they are strong: Its third-quarter profit of $1.57 a share beats most of its full-year results.

Record

I started my Thanksgiving GARP tradition in 1998 and have continued it every year since, except for three years. In 19 tries, my GARP picks have beaten the Standard & Poor’s Index 11 times and have been profitable 12 times.