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.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

Hyster-Yale Materials Handling (HY)

Market Cap: $636.3 million

Playing a significant role in the development of the hydraulic lift truck, Hyster-Yale (NYSE: HY) designs, manufactures, and sells materials handling equipment to various sectors.

Why Should You Sell HY?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Estimated sales decline of 6.9% for the next 12 months implies an even more challenging demand environment
3. Issuance of new shares partly offset its revenue growth over the last five years as its earnings per share were flat

Hyster-Yale Materials Handling’s stock price of $35.91 implies a valuation ratio of 5.7x forward EV-to-EBITDA. To fully understand why you should be careful with HY, check out our full research report (it’s free).

ANI Pharmaceuticals (ANIP)

Market Cap: $1.96 billion

With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.

Why Are We Cautious About ANIP?

1. Revenue base of $747.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Efficiency has decreased over the last five years as its adjusted operating margin fell by 5.6 percentage points
3. Push for growth has led to negative returns on capital, signaling value destruction

ANI Pharmaceuticals is trading at $96.67 per share, or 15.1x forward P/E. Check out our free in-depth research report to learn more about why ANIP doesn’t pass our bar.

CVB Financial (CVBF)

Market Cap: $2.69 billion

With roots dating back to 1974 and a focus on serving small and medium-sized businesses, CVB Financial (NASDAQ: CVBF) operates Citizens Business Bank, providing banking, lending, and trust services to businesses and individuals across California.

Why Does CVBF Worry Us?

1. 1.4% annual net interest income growth over the last five years was slower than its banking peers
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 9% annually, worse than its revenue
3. Annual tangible book value per share growth of 2.8% over the last five years was below our standards for the banking sector

At $19.51 per share, CVB Financial trades at 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than CVBF.

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