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.
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. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
CTS (CTS)
Market Cap: $1.21 billion
With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE: CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.
Why Should You Sell CTS?
- Annual sales declines of 6.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Revenue base of $515.8 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
At $40.50 per share, CTS trades at 18.6x forward P/E. Dive into our free research report to see why there are better opportunities than CTS.
UFP Industries (UFPI)
Market Cap: $5.9 billion
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Do We Think Twice About UFPI?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Earnings per share have dipped by 21.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
UFP Industries’s stock price of $96.08 implies a valuation ratio of 13.6x forward P/E. If you’re considering UFPI for your portfolio, see our FREE research report to learn more.
EchoStar (SATS)
Market Cap: $6.02 billion
Following its 2023 acquisition of DISH Network, EchoStar (NASDAQ: SATS) provides satellite communications, pay-TV services, wireless networks, and broadband solutions across consumer and enterprise markets.
Why Does SATS Fall Short?
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 11.5% annually
- Free cash flow margin shrank by 6.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
EchoStar is trading at $20.72 per share, or 3.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SATS doesn’t pass our bar.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
