Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.
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 face some trouble.
Two Stocks to Sell:
Vishay Intertechnology (VSH)
Market Cap: $2.16 billion
Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.
Why Should You Sell VSH?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9.1% annually over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 25.5% annually
- Free cash flow margin dropped by 15.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Vishay Intertechnology is trading at $15.90 per share, or 7.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why VSH doesn’t pass our bar.
Pitney Bowes (PBI)
Market Cap: $1.89 billion
With a century-long history dating back to 1920 and processing over 15 billion pieces of mail annually, Pitney Bowes (NYSE:PBI) provides shipping, mailing technology, logistics, and financial services to businesses of all sizes.
Why Does PBI Fall Short?
- Sales tumbled by 9% annually over the last five years, showing market trends are working against its favor during this cycle
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Underwhelming 9.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
If you’re considering PBI for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Pathward Financial (CASH)
Market Cap: $1.81 billion
Formerly known as Meta Financial until its 2022 rebranding, Pathward Financial (NASDAQ:CASH) provides banking-as-a-service solutions and commercial finance products, enabling partners to offer financial services like prepaid cards, payment processing, and lending options.
Why Will CASH Outperform?
- Market share has increased this cycle as its 15.1% annual net interest income growth over the last four years was exceptional
- Differentiated product suite is reflected in its Strong performance of its loan book leads to a High-yielding loan book and low cost of funds are reflected in its best-in-class net interest margin of 6.4%
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $76.97 per share, Pathward Financial trades at 2.1x forward P/B. 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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