Value and growth investing strategies are often considered to be opposites, but they do not have to be so. Warren Buffett once described the two investing approaches as “joined at the hip”.
“Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive”, he said in his 1992 letter to shareholders of Berkshire Hathaway.
Traditionally, value investors focus on current P/E and P/B ratios, whilst growth investors look at future growth rates. Value-growth strategies, which is often called growth at a reasonable price or GARP investing, is a strategy that combines aspects from both value and growth investing styles.
There are many methods to selecting shares with a blend of value and growth. I personally like to look at a combination of P/E valuations, earnings growth forecast and underlying fundamentals.
Standard Life
Standard Life (LSE: SL), which has long been struggling with its underperforming life insurance business, has undergone a massive transformation. The company has focused on expanding its investment management business, which has seen assets under administration grow 34% over the past two years to total £311.9 million by the end of the first quarter.
Analysts expect underlying EPS will grow by 61% to 25.4 pence in 2015, which implies a forward P/E of 18.0. Although this may not seem as cheap as some of the other shares that I will mention, Standard Life pays an attractive prospective dividend yield of 4.1%.
Barclays
Despite the recent boardroom turmoil, Barclays (LSE: BARC) should remain on its path to recovery. Its retail and business bank, Barclaycard and Africa banking business are all doing well, with returns on equity between 14.7% and 21.0% in the first quarter of 2015. The bank’s overall performance is dragged down by its investment bank and non-core “bad” bank; but with an improving economy, these business should improve as well.
For 2015, analysts expect adjusted EPS will grow by 34% to 28.3 pence, which implies a forward P/E of 11.6. Adjusted EPS is also forecast to grow by another 22% in 2016, to 28.4 pence, causing its forward P/E to fall to just 9.2 in the following year.
Ashtead Group
Equipment hire company Ashtead Group (LSE: AHT) has had a long history of consistently delivering strong earnings growth. Underlying EPS has grown by an annual compounded rate of 53.2% over the past three years.
Underlying EPS is projected to grow by another 24% to 77.9 pence this year, which implies a forward P/E of 13.6. The company will likely sustain its strong earnings momentum for some time, as construction activity picks up in the UK and US and the company optimises its product offerings.
Bellway
Underlying EPS for housebuilder Bellway (LSE: BWY) is expected to grow by 38% to 216.5 pence this year, which gives it a forward P/E of 10.8. With strong free cash flow generation, its dividend could grow just as quickly, and it currently sports a forward dividend yield of 3.0%.
OneSavings Bank
Along with delivering robust growth in new lending and deposits, OneSavings Bank (LSE: OSB) is becoming highly efficient and profitable. Its cost to income ratio of 28% is far lower than all of the major high-street banks; and this gives it a major competitive advantage over them. In addition, its return on equity of over 30% means that capital reinvested in the bank will generate a return substantially higher than the market average.
Analysts expect underlying EPS will grow by 29% to 31.5 pence, and its forward P/E is just 9.5.
