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 two Russell 2000 stocks that could deliver strong gains and one that may face some trouble.
One Stock to Sell:
Centrus Energy (LEU)
Market Cap: $4.55 billion
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE: LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Do We Steer Clear of LEU?
- Subscale operations are evident in its revenue base of $452.3 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 32.5% reflects its high production costs and unfavorable asset base
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 39.4 percentage points
At $229.50 per share, Centrus Energy trades at 47.6x forward P/E. To fully understand why you should be careful with LEU, check out our full research report (it’s free).
Two Stocks to Watch:
CBIZ (CBZ)
Market Cap: $1.55 billion
With over 120 offices across 33 states and a team of more than 6,700 professionals, CBIZ (NYSE: CBZ) provides accounting, tax, benefits, insurance brokerage, and advisory services to help small and mid-sized businesses manage their finances and operations.
Why Is CBZ a Top Pick?
- Market share has increased this cycle as its 30.3% annual revenue growth over the last two years was exceptional
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 22.9% annually
- Can finance growth initiatives independently due to its satisfactory free cash flow margin of 7% for the past five years, and its recently improved profitability means it has more resources to invest or distribute
CBIZ is trading at $30.21 per share, or 7.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Gulfport Energy (GPOR)
Market Cap: $3.26 billion
With drilling operations focused on the Utica Shale in eastern Ohio and the SCOOP play in central Oklahoma, Gulfport Energy (NYSE: GPOR) drills for and produces natural gas from underground shale formations.
Why Could GPOR Be a Winner?
- Market share has increased this cycle as its 9.2% annual revenue growth over the last ten years was exceptional
- Highly-profitable operating model results in strong unit economics and a premier gross margin of 69.5%
- GPOR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Gulfport Energy’s stock price of $181.50 implies a valuation ratio of 7.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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