Small-Cap Titans: 3 Russell 2000 Winners for 2025

January 20, 2025 at 07:45 AM EST

Russell 2000 small-cap winners

The Russell 2000 index is composed of small and mid-sized public companies, offering unique investment opportunities beyond traditional large-cap stocks. These companies span diverse sectors, including temporary space solutions, building materials, steel production, and more. Despite their varied focus, these businesses share the potential for healthy investor returns, making them attractive options for those willing to look beyond well-known blue-chip companies.

WillScot: Building Flexible Space and Strategic Growth

WillScot Mobile Mini Holdings (NASDAQ: WSC) is a leader in temporary space solutions. The company has demonstrated resilience in the face of challenging market conditions. WilScot’s earnings report for the third quarter of 2024 (Q3 2024) revealed revenue of $601 million. However, the company faced a net loss of $70.5 million, heavily impacted by a one-time $180 million charge associated with the McGrath RentCorp merger termination fee.

Excluding this charge and other non-recurring expenses, the company's adjusted income from continuing operations reached $72.3 million, or an adjusted diluted earnings per share (EPS) of $0.38. Adjusted EBITDA for the quarter totaled $267 million, reflecting a 1% increase year-over-year.

This figure also demonstrates a sequential margin expansion to 44.4%, a 50 basis point expansion compared to the same quarter of the previous year. Moreover, the company generated an adjusted free cash flow of $143 million, highlighting its ability to generate strong cash flow even when faced with market challenges.

WSC's strategic initiatives signal a focus on sustained growth. The partnership with the Los Angeles Rams, which resulted in a 65,000-square-foot practice facility, showcases the company’s capability in managing large-scale projects. WillScot's focus on long-term scalability is evident through its operational improvements, which include consolidating its legacy modular and storage field sales teams, system integration initiatives, brand consolidation under the WillScot name, and implementing advanced digital capabilities. These improvements are expected to drive efficiency and enhance customer experience.

Builders FirstSource: Strategic Acquisitions and Market Dynamics

Builders FirstSource (NYSE: BLDR) is the largest U.S. supplier of building products, and the company has encountered some challenges within the shifting dynamics of the housing market. Builders FirstSource’s earnings report for the third quarter of 2024 showed a net sales figure of $4.2 billion, reflecting a 6.7% decline compared to the prior year. The decrease was primarily driven by a 7.2% decline in core organic sales and commodity deflation. Furthermore, the company experienced a reduction in gross profit and adjusted EBITDA, registering $1.4 billion and $626.5 million, respectively, with corresponding decreases of 12.3% and 23% year-over-year. The Multi-Family sector significantly impacted these results, experiencing a notable 30.9% decline and a 4.2% reduction in net sales on a weighted basis.

Furthermore, adjusted diluted earnings per share for the quarter came in at $3.07, a 27.6% decrease when compared to the prior year. However, despite the mixed results, Builders FirstSource has demonstrated a commitment to shareholder value creation through strategic capital allocation. The company generated a strong free cash flow of $634.7 million for the quarter. It actively repurchased approximately 0.9 million shares of common stock at an average price of $176.73, totaling a capital expenditure of $159.7 million. The company has roughly $840 million remaining in its share repurchase authorization. The company’s focus remains on deploying capital to high-growth investments while maintaining a strong balance sheet.

A key strategic move for BLDR is the acquisition of Alpine Lumber Company. This acquisition, which is anticipated to close in early 2025, will expand the company’s footprint into high-growth markets in Colorado and New Mexico and increase annual revenue by approximately $500 million. The company’s full-year 2024 outlook anticipates a net sales range between $16.25B and $16.55B, with a gross profit margin between 32% to 33%. Adjusted EBITDA is projected between $2.25 billion to $2.35 billion, and free cash flow is expected to be between $1.2 billion to $1.4 billion.

Cleveland-Cliffs: Strategic Moves and Cost Management

Cleveland-Cliffs (NYSE: CLF) is a leading North American steel producer, and the company is currently operating and thriving in a challenging environment. Cleveland-Cliff’s earnings report for the third quarter of 2024 (Q3 2024) provided revenue metrics of $4.6 billion and a GAAP net loss of $230 million. This includes one-time charges of $145 million, primarily related to an arbitration decision and acquisition expenses.

Adjusting for these, the adjusted net loss came in at $156 million. Moreover, the company also reported an adjusted EBITDA figure of $124 million. The company's steel shipments for the quarter totaled 3.8 million net tons. The reduced figures are primarily the result of weaker demand and pricing, causing a tightening of margins. In response, the company temporarily idled the Cleveland #6 blast furnace and aggressively reduced its unit costs to the lowest level since 2021.

CLF's crucial strategic initiative is acquiring Stelco, a move meant to diversify its portfolio away from the automotive sector. Stelco’s low-cost and efficient assets and proven business model are expected to boost revenue while reducing risk. The company has made strategic adjustments to its capital budget for 2025, including lower coal costs to bring $70M in savings. The company is also focused on reducing acquisition debt by utilizing healthy free cash flow.

Russell 2000: A Trio of Opportunities Await

WillScot, Builders FirstSource, and Cleveland-Cliffs, while representing vastly different industries within the Russell 2000, each demonstrate a unique path to growth and an understanding of their respective markets. WillScot’s strategic partnerships and improved operations are positioning it to scale in the temporary space industry. At the same time, Builders FirstSource’s capital allocation and acquisitions are set to expand its reach and market position in the building sector, and Cleveland-Cliffs' strategic acquisitions and cost-cutting measures are building a more resilient steel business. These factors make each of them appealing investment options for investors looking for growth.

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Small-Cap Titans: 3 Russell 2000 Winners for 2025

WillScot: Building Flexible Space and Strategic Growth

Builders FirstSource: Strategic Acquisitions and Market Dynamics

Cleveland-Cliffs: Strategic Moves and Cost Management

Russell 2000: A Trio of Opportunities Await

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