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 be the next breakout winners and one that may struggle to keep up.
One Stock to Sell:
CTS (CTS)
Market Cap: $1.66 billion
With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE:CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.
Why Are We Wary of CTS?
- Sales trends were unexciting over the last five years as its 2.7% annual growth was below the typical business services company
- Subscale operations are evident in its revenue base of $564.3 million, meaning it has fewer distribution channels than its larger rivals
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
CTS is trading at $58.03 per share, or 23x forward P/E. If you’re considering CTS for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
MYR Group (MYRG)
Market Cap: $5.08 billion
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ:MYRG) is a specialty contractor in the electrical construction industry.
Why Are We Fans of MYRG?
- Exciting sales outlook for the upcoming 12 months calls for 19.4% growth, an acceleration from its two-year trend
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 90% exceeded its revenue gains over the last two years
- Industry-leading 16.2% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities
MYR Group’s stock price of $323.30 implies a valuation ratio of 24.9x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Tutor Perini (TPC)
Market Cap: $4.75 billion
Known for constructing the Philadelphia Eagles’ Stadium, Tutor Perini (NYSE:TPC) is a civil and building construction company offering diversified general contracting and design-build services.
Why Should You Buy TPC?
- Impressive 18.2% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Free cash flow margin jumped by 7.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Historical investments are beginning to pay off as its returns on capital are growing
At $90.97 per share, Tutor Perini trades at 17.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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