1 Russell 2000 Stock to Own for Decades and 2 We Turn Down
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. Keeping that in mind, here is one Russell 2000 stock that could be a breakout winner and two that may face some trouble.
Two Stocks to Sell:
Hyster-Yale Materials Handling (HY)
Market Cap: $600.9 million
Playing a significant role in the development of the hydraulic lift truck, Hyster-Yale (NYSE:HY) designs, manufactures, and sells materials handling equipment to various sectors.
Why Do We Steer Clear of HY?
- Sales tumbled by 6.5% annually over the last two years, showing market trends are working against it during this cycle
- Low free cash flow margin of -0.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes
At $33.49 per share, Hyster-Yale Materials Handling trades at 11.4x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why HY doesn’t pass our bar.
Kemper (KMPR)
Market Cap: $1.62 billion
Originally known as Unitrin until rebranding in 2011, Kemper (NYSE:KMPR) is an insurance holding company that provides automobile, homeowners, life, and other insurance products to individuals and businesses across the United States.
Why Should You Sell KMPR?
- Insurance policy sales contracted this cycle as net premiums earned decreased by 1.8% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 17.5% annually, worse than its revenue declines
- Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 7.6% annually over the last five years
Kemper is trading at $27.45 per share, or 0.6x forward P/B. If you’re considering KMPR for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
BGC (BGC)
Market Cap: $5.51 billion
Tracing its roots back to 1945 and named after founder Bernard Gerald Cantor, BGC Group (NASDAQ:BGC) operates a global brokerage and financial technology platform that facilitates trading across fixed income, foreign exchange, equities, energy, and commodities markets.
Why Do We Love BGC?
- Annual revenue growth of 24.8% over the last two years was superb and indicates its market share increased during this cycle
- Earnings per share grew by 24.6% annually over the last two years and trumped its peers
- Adequate return on equity shows management makes decent investment decisions
BGC’s stock price of $11.51 implies a valuation ratio of 8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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