The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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 are two Russell 2000 stocks that could deliver strong gains and one that may struggle to keep up.
One Stock to Sell:
F&G Annuities & Life (FG)
Market Cap: $3.68 billion
Founded in 1959 and serving approximately 677,000 policyholders who rely on its financial protection products, F&G Annuities & Life (NYSE:FG) provides fixed annuities, life insurance, and pension risk transfer solutions to retail and institutional clients.
Why Are We Cautious About FG?
- Costs have risen faster than its revenue over the last four years, causing its pre-tax profit margin to decline by 21.6 percentage points
- Annual book value per share declines of 4.6% for the past four years show its capital management struggled during this cycle
- Underwhelming 9.4% return on equity reflects management’s difficulties in finding profitable growth opportunities
F&G Annuities & Life is trading at $26.79 per share, or 6.6x forward P/E. Read our free research report to see why you should think twice about including FG in your portfolio.
Two Stocks to Watch:
Federal Signal (FSS)
Market Cap: $6.94 billion
Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE:FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.
Why Will FSS Beat the Market?
- Market share has increased this cycle as its 14% annual revenue growth over the last five years was exceptional
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 28% over the last two years outstripped its revenue performance
- Free cash flow margin increased by 5.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $113.94 per share, Federal Signal trades at 24.1x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
CRA (CRAI)
Market Cap: $1.02 billion
Often retained for high-stakes matters with multibillion-dollar implications, CRA International (NASDAQ:CRAI) provides economic, financial, and management consulting services to corporations, law firms, and government agencies for litigation, regulatory proceedings, and business strategy.
Why Are We Positive On CRAI?
- Annual revenue growth of 9.8% over the last two years was superb and indicates its market share increased during this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
CRA’s stock price of $154.69 implies a valuation ratio of 18.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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