The Russell 2000 is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. Keeping that in mind, here is one Russell 2000 stock that could be the next big thing and two that may struggle to keep up.
Two Stocks to Sell:
USANA (USNA)
Market Cap: $525.2 million
Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.
Why Is USNA Not Exciting?
- Sales tumbled by 10.4% annually over the last three years, showing consumer trends are working against its favor
- Smaller revenue base of $854.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Sales were less profitable over the last three years as its earnings per share fell by 23.1% annually, worse than its revenue declines
At $27.78 per share, USANA trades at 9.7x forward price-to-earnings. If you’re considering USNA for your portfolio, see our FREE research report to learn more.
Hyster-Yale Materials Handling (HY)
Market Cap: $740.8 million
Playing a significant role in the development of the hydraulic lift truck, Hyster-Yale (NYSE: HY) designs, manufactures, and sells materials handling equipment to various sectors.
Why Does HY Fall Short?
- 5.5% annual revenue growth over the last five years was slower than its industrials peers
- Projected sales decline of 5.4% for the next 12 months points to a tough demand environment ahead
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.4% for the last five years
Hyster-Yale Materials Handling’s stock price of $41.83 implies a valuation ratio of 7.9x forward price-to-earnings. To fully understand why you should be careful with HY, check out our full research report (it’s free).
One Stock to Buy:
Vital Farms (VITL)
Market Cap: $1.32 billion
With an emphasis on ethically produced products, Vital Farms (NASDAQ: VITL) specializes in pasture-raised eggs and butter.
Why Is VITL a Top Pick?
- Products are flying off the shelves as its unit sales averaged 18.9% growth over the past two years
- Notable projected revenue growth of 22.2% for the next 12 months hints at market share gains
- Earnings per share grew by 194% annually over the last three years and trumped its peers
Vital Farms is trading at $29.66 per share, or 24.6x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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