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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Resideo (REZI)
Market Cap: $5.13 billion
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Does REZI Worry Us?
- Estimated sales growth of 2.9% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin shrank by 22.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $34.10 per share, Resideo trades at 12.7x forward P/E. Read our free research report to see why you should think twice about including REZI in your portfolio.
Selective Insurance Group (SIGI)
Market Cap: $4.66 billion
Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ: SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.
Why Is SIGI Not Exciting?
- Costs have risen faster than its revenue over the last five years, causing its combined ratio to worsen by 2.3 percentage points
- Performance over the past two years shows its incremental sales were less profitable, as its 9.2% annual earnings per share growth trailed its revenue gains
- Capital trends were unexciting over the last five years as its 6.4% annual book value per share growth was below the typical insurance firm
Selective Insurance Group’s stock price of $76.94 implies a valuation ratio of 1.4x forward P/B. Check out our free in-depth research report to learn more about why SIGI doesn’t pass our bar.
WesBanco (WSBC)
Market Cap: $3.21 billion
Tracing its roots back to 1870 in West Virginia, WesBanco (NASDAQ: WSBC) is a bank holding company that provides retail and commercial banking, trust services, insurance, and investment products through its subsidiaries across several Midwestern and Mid-Atlantic states.
Why Does WSBC Give Us Pause?
- Net interest income trends were unexciting over the last five years as its 9% annual growth was below the typical banking firm
- Incremental sales over the last two years were less profitable as its 6.3% annual earnings per share growth lagged its revenue gains
- Flat tangible book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle
WesBanco is trading at $33.32 per share, or 0.8x forward P/B. To fully understand why you should be careful with WSBC, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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