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 best left off your watchlist.
Two Stocks to Sell:
Lumen (LUMN)
Market Cap: $9.68 billion
With approximately 350,000 route miles of fiber optic cable spanning North America and the Asia Pacific, Lumen Technologies (NYSE: LUMN) operates a vast fiber optic network that provides communications, cloud connectivity, security, and IT solutions to businesses and consumers.
Why Should You Dump LUMN?
- Annual sales declines of 10% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.3 percentage points
Lumen’s stock price of $9.44 implies a valuation ratio of 0.8x forward price-to-sales. If you’re considering LUMN for your portfolio, see our FREE research report to learn more.
First Bancorp (FBNC)
Market Cap: $2.39 billion
Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ: FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.
Why Are We Wary of FBNC?
- Sales trends were unexciting over the last two years as its 2% annual growth was below the typical banking company
- Net interest margin of 3.1% reflects its high servicing and capital costs
- Performance over the past two years shows its incremental sales were less profitable as its earnings per share were flat
First Bancorp is trading at $57.87 per share, or 1.5x forward P/B. Dive into our free research report to see why there are better opportunities than FBNC.
One Stock to Buy:
Blue Bird (BLBD)
Market Cap: $2.25 billion
With around a century of experience, Blue Bird (NASDAQ: BLBD) is a manufacturer of school buses and complementary parts.
Why Are We Bullish on BLBD?
- Impressive 14.3% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Free cash flow margin grew by 21 percentage points over the last five years, giving the company more chips to play with
- Improving returns on capital reflect management’s ability to monetize investments
At $72.54 per share, Blue Bird trades at 13.6x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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