The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here is one Russell 2000 stock that could be a breakout winner and two that may struggle to keep up.
Two Industrials Stocks to Sell:
Hillenbrand (HI)
Market Cap: $2.24 billion
Hillenbrand, Inc. (NYSE: HI) is an industrial company that designs, manufactures, and sells highly engineered processing equipment and solutions for various industries.
Why Do We Pass on HI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.7% annually over the last two years
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 16.4 percentage points
Hillenbrand’s stock price of $31.76 implies a valuation ratio of 12.3x forward P/E. To fully understand why you should be careful with HI, check out our full research report (it’s free for active Edge members).
Garrett Motion (GTX)
Market Cap: $3.38 billion
A key player in the transition to cleaner vehicles, Garrett Motion (NYSE: GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.
Why Are We Hesitant About GTX?
- Annual sales declines of 4% for the past two years show its products and services struggled to connect with the market during this cycle
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Issuance of new shares over the last five years caused its earnings per share to fall by 12.7% annually while its revenue grew
At $17.69 per share, Garrett Motion trades at 10.2x forward P/E. Dive into our free research report to see why there are better opportunities than GTX.
One Industrials Stock to Watch:
Mueller Water Products (MWA)
Market Cap: $3.74 billion
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Why Could MWA Be a Winner?
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 43.1% outpaced its revenue gains
- Free cash flow margin grew by 3.6 percentage points over the last five years, giving the company more chips to play with
Mueller Water Products is trading at $23.94 per share, or 17.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
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