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 is one Russell 2000 stock that could deliver strong gains and two that may face some trouble.
Two Stocks to Sell:
Herbalife (HLF)
Market Cap: $1.24 billion
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Are We Cautious About HLF?
- Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Estimated sales growth of 2.9% for the next 12 months is soft and implies weaker demand
- Earnings per share decreased by more than its revenue over the last three years, partly because it diluted shareholders
Herbalife is trading at $12.05 per share, or 3.9x forward P/E. Check out our free in-depth research report to learn more about why HLF doesn’t pass our bar.
Helios (HLIO)
Market Cap: $1.73 billion
Founded on the principle of treating others as one wants to be treated, Helios (NYSE: HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.
Why Are We Out on HLIO?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Helios’s stock price of $52.12 implies a valuation ratio of 17.6x forward P/E. If you’re considering HLIO for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Fidelis Insurance (FIHL)
Market Cap: $1.94 billion
Founded in Bermuda in 2014 and designed to adapt nimbly to evolving market conditions, Fidelis Insurance (NYSE: FIHL) is a global specialty insurer and reinsurer that provides customized coverage across property, specialty, and bespoke risk solutions.
Why Does FIHL Stand Out?
- Net premiums earned surged by 17.1% annually over the past two years, reflecting strong market share gains this cycle
- Estimated revenue growth of 10.1% for the next 12 months implies its momentum over the last two years will continue
- Capital strength is on track to rise over the next 12 months as its 18.5% projected book value per share growth implies profitability will accelerate from its two-year trend
At $18.85 per share, Fidelis Insurance trades at 0.8x forward P/B. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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