Most investors are familiar with the acronym GARP, which stands for growth at a reasonable price. UBS A.G. (NYSE: UBS) has taken that category one step further and added a Q for quality. The Q-GARP recommended list consists of 16 stocks that meet the requirements for membership in this exclusive club. The Q-GARP team at UBS has added five new names to the list.

What is Q-GARP? Again it stands for quality growth at a reasonable price. The Q-GARP stock list is constructed using an initial quantitative screen of stocks based on: 1) quality metrics — high and stable profitability, 2) growth — high expected earnings growth, and 3) valuation — low valuation relative to peers. The analysts at UBS maintain a preference for growth stocks over value stocks.

From a long-term perspective, growth and value stocks have had six alternating outperformance cycles over the past 30 years. The most recent growth stock outperformance cycle began in mid-2006 but has weakened over the past nine months. For now though, the UBS team does not believe that we are in the early stages of a new extended outperformance cycle for value over growth stocks.

Added to Q-GARP list were the following:

• Ameriprise Financial Inc. (NYSE: AMP). This growing financial services firm has a Wall St. consensus price target of $75.
• CVS Caremark Corp. (NYSE: CVS). With a nationwide network of drug stores, CVS has a Thomson/First call estimate of $58.
• O’Reilly Automotive Inc. (NASDAQ: ORLY). The auto parts retailer with stores nationwide has a consensus price target of $109.
• V.F. Corp. (NYSE: VFC). With apparel, footwear, outdoor gear and more targeting younger consumers, V.F. Corp. has a consensus target of $174.50.
• Yum! Brands Inc. (NYSE: YUM). Well known for its KFC, Pizza Hut and Taco Bell restaurants, this stock may have been added also because of recent poor performance in China. The Thomson/First call estimate is $67.

The interesting common thread in these stocks is they sell products or services that consumers return to. In addition, every name is currently trading below the consensus target price. Investors who rotate to these names with the stock market making new highs may be well rewarded in the future.

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