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. That said, here is one Russell 2000 stock that could be the next big thing and two that may struggle to keep up.
Two Stocks to Sell:
SunOpta (STKL)
Market Cap: $674.7 million
Committed to clean-label foods, SunOpta (NASDAQ:STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Are We Cautious About STKL?
- Annual revenue declines of 4.2% over the last three years indicate problems with its market positioning
- Smaller revenue base of $742.7 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Gross margin of 16% is an output of its commoditized products
SunOpta is trading at $5.75 per share, or 29.1x forward P/E. Check out our free in-depth research report to learn more about why STKL doesn’t pass our bar.
Movado (MOV)
Market Cap: $343.8 million
With its watches displayed in 20 museums around the world, Movado (NYSE:MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Why Do We Think MOV Will Underperform?
- Annual sales declines of 6% for the past two years show its products and services struggled to connect with the market
- Operating margin of 4.4% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Movado’s stock price of $15.99 implies a valuation ratio of 0.5x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including MOV in your portfolio.
One Stock to Watch:
DXP (DXPE)
Market Cap: $1.27 billion
Founded during the emergence of Big Oil in Texas, DXP (NASDAQ:DXPE) provides pumps, valves, and other industrial components.
Why Are We Fans of DXPE?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Share repurchases over the last two years enabled its annual earnings per share growth of 34.6% to outpace its revenue gains
- Improving returns on capital reflect management’s ability to monetize investments
At $80.99 per share, DXP trades at 14.7x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. 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 Kadant (+351% five-year return). Find your next big winner with StockStory today for free.