This could be the right time to buy these 'growth at a reasonable price' standouts, BMO says

Published Sun, Jul 30 20238:21 AM EDTUpdated Sun, Jul 30 20238:35 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

After the artificial intelligence craze helped fuel a comeback rally for stocks in the first half of the year, investors should consider shifting their attention toward a long-term strategy, according to BMO Capital Markets. Chief investment strategist Brian Belski said in a July 26 note to clients that "growth at a reasonable price" stocks should be key holdings of the riskier portion of an investment portfolio. The so-called "GARP" stocks tend to have characteristics of both growth and value factors. "We have found through our work that GARP strategies tend to perform much better over longer periods than singularly focused growth or value strategies," Belski wrote. BMO defines "GARP" stocks as those with forward-looking price-to-earnings and price-to-earnings-growth ratios below the median of the S & P 500, while projected earnings growth is greater than the median S & P 500 value. As optimism about the U.S. economy has improved, the gap between earnings growth expectations for GARP companies and the broader market has shrunk. But that could mean that this is a good entry point for the group, which has struggled so far in 2023. "Even with the slight deterioration in relative earnings growth, the [next 12 months] PEG ratio has declined sharply and is only slightly above a historically low level ... which to us suggests a quite favorable backdrop for GARP stocks," Belski wrote. BMO's list of stocks that fit the GARP profile and have outperform ratings from the firm's analysts have had varying degrees of success so far this year. They also cut across sector groups. The group includes some stocks that haven't kept up with their peers in 2023. DXC Technology shares are up 4.5% for the year, while the Technology Select Sector SPDR Fund (XLK) is up more than 40%. Meanwhile, PayPal 's year-to-date gains of about 3.9% are slightly ahead of the broader financial sector, but investors who still view it as a technology stock are likely underwhelmed with that performance. Oil stock SLB , formerly Schlumberger, has been a standout in its sector but is also up less than 7%. The company is well liked by Wall Street, as about 90% of analysts have a buy or a strong buy rating on the stock, according to Refinitiv. Insurance stock Travelers is actually down more than 7% for the year. Unlike with SLB, Wall Street is generally cool on Travelers, with the majority of analysts assigning hold ratings to the stock, according to Refinitiv. - CNBC's Michael Bloom contributed reporting.