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.
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 that may struggle to keep up.
Two Stocks to Sell:
Titan International (TWI)
Market Cap: $474 million
Acquiring Goodyear’s farm tire business in 2005, Titan (NSYE:TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.
Why Should You Sell TWI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7.4% annually over the last two years
- Gross margin of 14% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 93.4% annually, worse than its revenue
Titan International is trading at $7.44 per share, or 20.6x forward P/E. To fully understand why you should be careful with TWI, check out our full research report (it’s free).
VSE Corporation (VSEC)
Market Cap: $2.71 billion
With roots dating back to 1959 and a strategic focus on extending the life of transportation assets, VSE Corporation (NASDAQ: VSEC) provides aftermarket parts distribution and maintenance, repair, and overhaul services for aircraft and vehicle fleets in commercial and government markets.
Why Are We Cautious About VSEC?
- High input costs result in an inferior gross margin of 12.3% that must be offset through higher volumes
- Earnings per share fell by 4.1% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Cash burn makes us question whether it can achieve sustainable long-term growth
VSE Corporation’s stock price of $135.59 implies a valuation ratio of 35.8x forward P/E. Check out our free in-depth research report to learn more about why VSEC doesn’t pass our bar.
One Stock to Buy:
IonQ (IONQ)
Market Cap: $8.06 billion
Founded by quantum physics pioneers from the University of Maryland and Duke University in 2015, IonQ (NYSE: IONQ) develops quantum computers that process information using trapped ions to solve complex computational problems beyond the capabilities of traditional computers.
Why Will IONQ Outperform?
- Annual revenue growth of 78.8% over the last two years was superb and indicates its market share increased during this cycle
- Adjusted operating margin expanded by 614.5 percentage points over the last five years as it scaled and became more efficient
- Negative free cash flow margin has improved over the last five years, showing the company is one step closer to financial self-sufficiency
At $32.69 per share, IonQ trades at 72.7x forward price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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