Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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. That said, here is one Russell 2000 stock that could be the next big thing and two that may face some trouble.
Two Stocks to Sell:
EnerSys (ENS)
Market Cap: $7.29 billion
Supplying batteries that power equipment as big as mining rigs, EnerSys (NYSE: ENS) manufactures various kinds of batteries for a range of industries.
Why Does ENS Worry Us?
- Flat unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.1%
- Gross margin of 26.6% is below its competitors, leaving less money to invest in areas like marketing and R&D
EnerSys’s stock price of $199.93 implies a valuation ratio of 16.8x forward P/E. Check out our free in-depth research report to learn more about why ENS doesn’t pass our bar.
Radian Group (RDN)
Market Cap: $5.07 billion
Founded during the housing boom of 1977 and weathering multiple real estate cycles since, Radian Group (NYSE: RDN) provides mortgage insurance and real estate services, helping lenders manage risk and homebuyers achieve affordable homeownership.
Why Does RDN Give Us Pause?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Insurance offerings faced market headwinds this cycle, reflected in stagnant net premiums earned over the last five years
- Earnings per share lagged its peers over the last two years as they only grew by 6.2% annually
Radian Group is trading at $38.16 per share, or 1x forward P/B. If you’re considering RDN for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
First BanCorp (FBP)
Market Cap: $4.37 billion
Tracing its roots back to 1948 in San Juan, First BanCorp (NYSE: FBP) is a bank holding company that provides commercial banking, consumer financing, mortgage services, and insurance products across Puerto Rico, the U.S. mainland, and the Caribbean.
Why Does FBP Stand Out?
- High-yielding loan book and low cost of funds result in a best-in-class net interest margin of 4.7%
- Efficiency ratio improved by 12.5 percentage points over the last five years as it scaled
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $28.83 per share, First BanCorp trades at 2.2x forward P/B. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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