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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. 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:
ManpowerGroup (MAN)
Market Cap: $2.65 billion
Founded during the post-World War II economic boom when businesses needed temporary workers, ManpowerGroup (NYSE:MAN) connects millions of people to employment opportunities through its global network of staffing, recruitment, and workforce management services.
Why Are We Bearish on MAN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.2% annually over the last five years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 13.8% annually, worse than its revenue
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $56.96 per share, ManpowerGroup trades at 13.9x forward P/E. Read our free research report to see why you should think twice about including MAN in your portfolio.
Liberty Energy (LBRT)
Market Cap: $2.98 billion
Operating approximately 40 active fleets across North America's most productive shale basins, Liberty Energy (NYSE:LBRT) provides hydraulic fracturing services that help oil and gas companies extract resources from shale formations.
Why Does LBRT Give Us Pause?
- Gross margin of 23.3% is below its competitors, leaving less money to invest in exploration and production
- Poor free cash flow margin of 1.9% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Liberty Energy is trading at $18.30 per share, or 74.3x forward P/E. To fully understand why you should be careful with LBRT, check out our full research report (it’s free).
One Stock to Buy:
Badger Meter (BMI)
Market Cap: $3.79 billion
The developer of the world’s first frost-proof water meter in 1905, Badger Meter (NYSE:BMI) provides water control and measure equipment to various industries.
Why Will BMI Beat the Market?
- Impressive 13.6% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Additional sales over the last five years increased its profitability as the 17.5% annual growth in its earnings per share outpaced its revenue
- Robust free cash flow margin of 15.6% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
Badger Meter’s stock price of $130.57 implies a valuation ratio of 27.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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