The Russell 2000 (^RUT) 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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here is one Russell 2000 stock that could be a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Integer Holdings (ITGR)
Market Cap: $2.97 billion
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE: ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Does ITGR Give Us Pause?
- Subscale operations are evident in its revenue base of $1.85 billion, meaning it has fewer distribution channels than its larger rivals
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Low returns on capital reflect management’s struggle to allocate funds effectively
Integer Holdings’s stock price of $86.18 implies a valuation ratio of 13.1x forward P/E. Dive into our free research report to see why there are better opportunities than ITGR.
Farmer Mac (AGM)
Market Cap: $1.53 billion
Created by Congress in 1987 to build a bridge between Wall Street and rural America, Farmer Mac (NYSE: AGM) provides a secondary market for agricultural and rural loans, helping lenders increase their liquidity and lending capacity to serve rural America.
Why Do We Think Twice About AGM?
- Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its financials peers
- Earnings per share lagged its peers over the last two years as they only grew by 3.3% annually
- Debt-to-equity ratio of 19.8× shows the firm has taken on excessive debt, leaving little room for error
At $143.31 per share, Farmer Mac trades at 7.6x forward P/E. Read our free research report to see why you should think twice about including AGM in your portfolio.
One Stock to Buy:
Blue Bird (BLBD)
Market Cap: $1.78 billion
With around a century of experience, Blue Bird (NASDAQ: BLBD) is a manufacturer of school buses and complementary parts.
Why Are We Backing BLBD?
- Impressive 11.9% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Free cash flow margin jumped by 23.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Rising returns on capital show management is finding more attractive investment opportunities
Blue Bird is trading at $56.94 per share, or 12.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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