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 are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Market Cap: $541.2 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 Do We Think TWI Will Underperform?
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Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.2% annually over the last two years
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Diminishing returns on capital suggest its earlier profit pools are drying up
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Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Titan International is trading at $8.47 per share, or 23.8x forward P/E. To fully understand why you should be careful with TWI, check out our full research report (it’s free).
Market Cap: $503 million
Founded in the 1960s as a general wood-making company, JELD-WEN (NYSE:JELD) manufactures doors, windows, and other related building products.
Why Do We Pass on JELD?
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Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
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Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
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Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
JELD-WEN’s stock price of $5.89 implies a valuation ratio of 92.9x forward P/E. Check out our free in-depth research report to learn more about why JELD doesn’t pass our bar.
Market Cap: $1.61 billion
Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ:ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.
Why Is ZD Risky?
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Sales were flat over the last five years, indicating it’s failed to expand this cycle
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Sales over the last five years were less profitable as its earnings per share fell by 1.7% annually while its revenue was flat
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Free cash flow margin dropped by 15.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up