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John Dorfman

Why Pfizer, 4 other GARP stocks look good

| Monday, Nov. 27, 2017, 11:00 p.m.

A no man's land can be a dangerous spot. But in the case of GARP stocks, it may be a good place.

GARP stands for growth at a reasonable price. Growth investors seek companies with rapidly growing sales and earnings. Value investors (like me) seek bargains. In the no man's land between them stands GARP.

Because investors these days thirst for growth, and because the market as a whole is expensive (at about 22 times companies' per-share earnings), this may be a good time for the GARP approach.

Most of the stocks I recommend in this column, year in and year out, sell for 15 times per-share earnings or less. That's because I'm a cheapskate, and a multiple of about 15 is historically normal.

But once a year, around Thanksgiving time, I loosen my belt and recommend a few stocks selling for 16 to 19 times earnings, which I consider GARP territory.

Here are five that look tasty to me at the moment.

Loral Space

Loral Space & Communications Inc. (LORL) has no direct operations, but owns a majority stake in two satellite companies. The larger is Telesat, based in Canada; the smaller is XTAR, based in Herndon, Va.

Telesat is the world's fourth-largest satellite company, with about a dozen birds in orbit. XTAR has two satellites, used by the U.S. and European governments for intelligence communications among other things.

In the past 12 months, Loral has earned a 40 percent return on stockholders' equity. The stock sells for about 17 times earnings.

Ituran Location

Based in Israel, Ituran Location and Control Ltd. (ITRN) makes equipment for tracking and recovering stolen cars. Its technology was originally developed by the Israeli military to locate downed pilots.

In the U.S., one of Ituran's major competitors is LoJack Corp., which was acquired in 2016 by CalAmp Corp. (CAMP). Shares in CalAmp trade for 101 times recent earnings. By contrast, Ituran shares are comparatively cheap at 17 times earnings.

Ituran's business has accelerated in the past year. For example, revenue grew about 17 percent, versus about 7 percent for the past ten years.

Applied Materials

Back for a second year is Applied Materials Inc. (AMAT) of Santa Clara, Calif. The company serves the semiconductor industry, making equipment for deposition (creating the various layers of a semiconductor wafer), etching (creating the microscopic grooves needed for mini-circuitry), and testing.

Among its major customers are Taiwan Semiconductor, Samsung Electronics, Micron Technology Inc. and Intel Corp.

In a feast-or-famine industry, Applied Materials is currently feasting. The good times won't last forever. But I think Applied Materials can stand the bad times better than most in its industry. It has posted profits in 13 of the past 15 years, and has a reasonably solid balance sheet.

Computer Services

Computer Services Inc. (CSVI), with headquarters in Paducah, Ky., provides payment processing services to banks, insurance companies and other companies.

The company is debt free, and had a 20 percent return on stockholders' equity in the past four quarters. The weak point is that growth has been on the slow side, a little above 3 percent the past three years for both sales and earnings. However, there was some acceleration in fiscal 2017 (which ended in February).

This is a small-cap stock, with hardly any analytical following. But I think it looks attractive at 18 times earnings.


For my fifth and final GARP selection this year, I will go with Pfizer Inc. (PFE), a traditional powerhouse that has struggled a bit in the past couple of years. It has an appealing dividend yield, 3.6 percent.

Pfizer's return on equity in the past 12 months was about 16 percent, the best in four years. The substantial dividend yield is well covered by earnings.

Track record

This is my 17th column devoted to picking some GARP stocks. The columns have appeared each November since 1998, with the exceptions of 2003 (when I forgot) and 2007-08 (when I was temporarily retired as a columnist).

On average, my GARP picks have shown a 12-month total return of 12.9 percent, versus 8.7 percent for the Standard & Poor's 500 Index.

Eleven of the 16 columns were profitable, and 11 (but not necessarily the same ones) beat the index.

Bear in mind that my column recommendations are theoretical and don't reflect actual trades, trading costs or taxes. Their results shouldn't be confused with the performance of portfolios I manage for clients. And past performance doesn't predict future results.

Last year, my worst pick was furniture maker Leggett & Platt Inc. (LEG), which fell 2.6 percent. My best was Applied Materials, up 83.8 percent. Overall, my GARP stocks from a year ago returned 32.4 percent, as against 20.3 percent for the S&P 500.

Disclosure: I own Applied Materials personally and for most of my clients. I own Pfizer for a few clients.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at

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