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 deliver strong gains and two that may face some trouble.
Two Stocks to Sell:
Apogee (APOG)
Market Cap: $737.2 million
Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ: APOG) sells architectural products and services such as high-performance glass for commercial buildings.
Why Should You Sell APOG?
- Sales tumbled by 1.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Anticipated sales growth of 1% for the next year implies demand will be shaky
- Earnings per share have contracted by 8.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $34.59 per share, Apogee trades at 8.5x forward P/E. Read our free research report to see why you should think twice about including APOG in your portfolio.
Integral Ad Science (IAS)
Market Cap: $1.73 billion
Processing over 280 billion digital ad interactions daily through its AI-powered technology, Integral Ad Science (NASDAQ: IAS) provides a cloud-based platform that measures and verifies digital advertising across devices, channels, and formats to ensure ads are viewable, fraud-free, and brand-safe.
Why Does IAS Fall Short?
- Annual revenue growth of 13.6% over the last two years was below our standards for the software sector
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
- Free cash flow margin is forecasted to shrink by 10.1 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Integral Ad Science’s stock price of $10.28 implies a valuation ratio of 2.6x forward price-to-sales. To fully understand why you should be careful with IAS, check out our full research report (it’s free for active Edge members).
One Stock to Buy:
Bowhead Specialty (BOW)
Market Cap: $877.9 million
Named after the Arctic bowhead whale known for navigating challenging waters, Bowhead Specialty Holdings (NYSE: BOW) is a specialty insurance company that provides customized coverage for complex and high-risk commercial sectors.
Why Is BOW a Top Pick?
- Net premiums earned expanded by 37.9% annually over the last two years, demonstrating exceptional market penetration this cycle
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Earnings growth has topped the peer group average over the last two years as its EPS has compounded at 25.6% annually
Bowhead Specialty is trading at $26.27 per share, or 2x forward P/B. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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