Finding GARP Stocks in 2026 as Nosebleed Valuations Raise Concerns
Some solid growth plays are still trading at reasonable valuations in healthcare.
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The S&P 500 rose 16.4% in 2025. While that was not quite up to the more robust returns of 2023 and 2024, it was far above the historical norms.
It was only the third time in a century that the S&P 500 rose 15% or more for three straight years. The Internet Boom ran that to four years in a row in 1999, before all the steam ran out of equities. The Nasdaq would then plunge over 80% peak-to-trough during the two-and-a-half-year Internet Bust that followed.
The rise in the major indexes is even more impressive, given that almost all the growth has come from the Magnificent Seven that has been riding the AI Revolution since ChatGPT debuted in November 2022. This was in the tail end of a mid-term year that saw the S&P 500 fall 18%. The Nasdaq lost roughly one-third of its value in 2022 as the Federal Reserve kicked off the most aggressive monetary policy since bell bottoms were in style and disco was still a thing.
Will history repeat in 2026? Well, it is another year with mid-term elections approaching.
Valuations are in nosebleed territory looking at numerous traditional valuation metrics. To have any hope of stretching gains for a fourth straight year, investors need to see a significant improvement in market breadth. And that means a broadening of profit growth throughout equities.
The S&P 493 delivered approximately 3% annual EPS growth from 2023 to2025. Bottom-up analysis from Factset has profit growth accelerating to just above 10% in both FY2026 and FY2027. The Magnificent Seven delivered approximately 23% earnings growth in FY2025, and similar growth is projected for this fiscal year. Overall, S&P 500 profits are expected to climb 12% in 2026.
A broadening of growth prospects in the coming 12 months would be a blessing for my portfolio. I am never going to be an investor that pays 90 times revenues for Palantir (PLTR) . A greater number of reasonably priced growth plays would be welcomed in 2026. Healthcare is one area of the market that I am finding numerous GARP stocks within.
I profiled one of these, BioMarin Pharmaceuticals (BMRN) , on my column on Sunday. In my previous Sunday column, I also highlighted another in Harmony Biosciences (HRMY) . I have some covered call positions that are scheduled to expire in the money in two weeks around drug giant Gilead Sciences (GILD) .
I will be reinitiating that position when that event occurs as Gilead remains a reasonably priced growth concern in an overbought market. Gilead continues to see good growth from its core HIV franchise and has expanded its footprint outside of HIV to areas like oncology in recent years. The company should see consistent profit growth in the high single digits in the coming years. The stock trades for just under 14 times forward earnings, a large discount to the current multiple on the S&P 500. It also yields 2.6%, making it a reasonable value
At the time of publication, Jensen was long BMRN, GILD and HRMY.
