The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

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 deliver strong gains and two best left off your watchlist.

Two Industrials Stocks to Sell:

Richardson Electronics (RELL)

Market Cap: $126 million

Founded in 1947, Richardson Electronics (NASDAQ: RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Why Do We Avoid RELL?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 12.3% annually over the last two years
2. Earnings per share have contracted by 74.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.4% for the last five years

Richardson Electronics is trading at $9.23 per share, or 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than RELL.

Champion Homes (SKY)

Market Cap: $4.95 billion

Founded in 1951, Champion Homes (NYSE: SKY) is a manufacturer of modular homes and buildings in North America.

Why Are We Hesitant About SKY?

1. Flat unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Performance over the past two years was negatively impacted by new share issuances as its earnings per share dropped by 31.5% annually, worse than its revenue
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $84.42 per share, Champion Homes trades at 23.1x forward P/E. To fully understand why you should be careful with SKY, check out our full research report (it’s free).

One Industrials Stock to Buy:

Graham Corporation (GHM)

Market Cap: $361.2 million

Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.

Why Are We Backing GHM?

1. Market share has increased this cycle as its 17% annual revenue growth over the last five years was exceptional
2. Earnings growth has trumped its peers over the last two years as its EPS has compounded at 298% annually
3. Free cash flow margin jumped by 5.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

Graham Corporation’s stock price of $33.13 implies a valuation ratio of 27.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.