Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.

These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.

Quanex (NX)

Market Cap: $972.4 million

Starting in the seamless tube industry, Quanex (NYSE: NX) manufactures building products like window, door, kitchen, and bath cabinet components.

Why Are We Wary of NX?

1. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 5.4% annually
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.9 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Quanex is trading at $21.61 per share, or 7.8x forward P/E. Read our free research report to see why you should think twice about including NX in your portfolio.

MRC Global (MRC)

Market Cap: $1.28 billion

Producing bomb casings and tracks for vehicles during WWII, MRC (NYSE: MRC) offers pipes, valves, and fitting products for various industries.

Why Do We Think MRC Will Underperform?

1. Sales were flat over the last five years, indicating it’s failed to expand this cycle
2. Performance over the past two years was negatively impacted by new share issuances as its earnings per share dropped by 36.4% annually, worse than its revenue
3. Free cash flow margin dropped by 5.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up

MRC Global’s stock price of $15.08 implies a valuation ratio of 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than MRC.

Atlantic Union Bankshares (AUB)

Market Cap: $5.09 billion

Tracing its roots back to 1902 when it first opened its doors in Virginia, Atlantic Union Bankshares (NYSE: AUB) is a full-service regional bank providing commercial and retail banking, wealth management, and insurance services throughout Virginia and parts of Maryland and North Carolina.

Why Do We Think Twice About AUB?

1. Net interest margin of 3.4% reflects its high servicing and capital costs
2. Products and services are facing profitability challenges during this cycle, as seen in its flat tangible book value per share over the last five years
3. Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 6.5%

At $35.73 per share, Atlantic Union Bankshares trades at 1x forward P/B. Check out our free in-depth research report to learn more about why AUB doesn’t pass our bar.

Stocks We Like More

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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-micro-cap company Tecnoglass (+1,754% 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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