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.
Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here is one Russell 2000 stock that could be a breakout winner and two best left off your watchlist.
Two Stocks to Sell:
PENN Entertainment (PENN)
Market Cap: $2.01 billion
Established in 1982, PENN Entertainment (NASDAQ: PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.
Why Do We Steer Clear of PENN?
- Sales trends were unexciting over the last five years as its 7.5% annual growth was below the typical consumer discretionary company
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.3% for the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
PENN Entertainment’s stock price of $15.68 implies a valuation ratio of 15.4x forward P/E. To fully understand why you should be careful with PENN, check out our full research report (it’s free).
Kadant (KAI)
Market Cap: $3.08 billion
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Are We Wary of KAI?
- Sales trends were unexciting over the last two years as its 7% annual growth was below the typical industrials company
- Incremental sales over the last two years were less profitable as its 4% annual earnings per share growth lagged its revenue gains
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Kadant is trading at $260.55 per share, or 20.3x forward P/E. Dive into our free research report to see why there are better opportunities than KAI.
One Stock to Watch:
Amalgamated Financial (AMAL)
Market Cap: $1.41 billion
Founded in 1923 by labor unions seeking a financial institution aligned with worker values, Amalgamated Financial (NASDAQGM:AMAL) operates a values-oriented bank that provides commercial banking, trust services, and investment management to socially responsible organizations and individuals.
Why Do We Like AMAL?
- Annual net interest income growth of 12.9% over the last five years beat the sector average and underscores the value of its loans
- Share buybacks catapulted its annual earnings per share growth to 17.3%, which outperformed its revenue gains over the last five years
- Balance sheet strength has increased this cycle as its 10% annual tangible book value per share growth over the last five years was exceptional
At $47.14 per share, Amalgamated Financial trades at 1.6x forward P/B. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
