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. Keeping that in mind, here are two Russell 2000 stocks that could be the next breakout winners and one best left off your watchlist.
One Stock to Sell:
Columbia Financial (CLBK)
Market Cap: $1.78 billion
Founded during the Roaring Twenties in 1926 and headquartered in Fair Lawn, New Jersey, Columbia Financial (NASDAQ:CLBK) operates federally chartered savings banks in New Jersey that offer traditional banking services including loans, deposits, and insurance products.
Why Do We Pass on CLBK?
- Net interest income stagnated over the last five years and signal the need for new growth strategies
- Weak unit economics are reflected in its net interest margin of 2%, one of the worst among bank companies
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
Columbia Financial’s stock price of $16.95 implies a valuation ratio of 1.5x forward P/B. Read our free research report to see why you should think twice about including CLBK in your portfolio.
Two Stocks to Watch:
Distribution Solutions (DSGR)
Market Cap: $1.28 billion
Founded in 1952, Distribution Solutions (NASDAQ:DSGR) provides supply chain solutions and distributes industrial, safety, and maintenance products to various industries.
Why Could DSGR Be a Winner?
- Annual revenue growth of 15.1% over the last two years was superb and indicates its market share increased during this cycle
- Solid gross margin and unit economics free up capital for marketing and product development efforts
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 34.8% annually
At $27.79 per share, Distribution Solutions trades at 17.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Live Oak Bancshares (LOB)
Market Cap: $1.53 billion
Founded during the 2008 financial crisis with a vision to reimagine small business banking through technology, Live Oak Bancshares (NYSE:LOB) is a bank holding company that specializes in providing online banking services and SBA-guaranteed loans to small businesses across targeted industries nationwide.
Why Do We Like LOB?
- Annual net interest income growth of 19.9% over the past five years was outstanding, reflecting market share gains this cycle
- Productivity and efficiency ratio profits are expected to increase next year as some fixed cost leverage kicks in
- Impressive 10.8% annual tangible book value per share growth over the last five years indicates it’s building equity value this cycle
Live Oak Bancshares is trading at $33.28 per share, or 1.3x forward P/B. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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