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 is one Russell 2000 stock that could deliver strong gains and two best left off your watchlist.
Two Stocks to Sell:
ICU Medical (ICUI)
Market Cap: $3.83 billion
Founded in 1984 and named for its initial focus on intensive care units, ICU Medical (NASDAQ: ICUI) develops and manufactures medical products for infusion therapy, vascular access, and vital care applications used in hospitals and other healthcare settings.
Why Are We Out on ICUI?
- Muted 2.1% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Estimated sales decline of 7.7% for the next 12 months implies a challenging demand environment
- Free cash flow margin shrank by 11.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
ICU Medical’s stock price of $154.99 implies a valuation ratio of 20x forward P/E. To fully understand why you should be careful with ICUI, check out our full research report (it’s free).
Cathay General Bancorp (CATY)
Market Cap: $3.46 billion
Founded in 1962 with its first branch in Los Angeles' Chinatown, Cathay General Bancorp (NASDAQ: CATY) operates Cathay Bank, providing commercial banking services to businesses and individuals with a strong presence in Asian-American communities.
Why Does CATY Give Us Pause?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
- Annual net interest income growth of 5.4% over the last five years was below our standards for the banking sector
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 7.5% annually, worse than its revenue
At $50.83 per share, Cathay General Bancorp trades at 1.2x forward P/B. If you’re considering CATY for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
The Ensign Group (ENSG)
Market Cap: $10.56 billion
Founded in 1999 and named after a naval term for a flag-bearing ship, The Ensign Group (NASDAQ: ENSG) operates skilled nursing facilities, senior living communities, and rehabilitation services across 15 states, primarily serving high-acuity patients recovering from various medical conditions.
Why Are We Positive On ENSG?
- Products are seeing elevated demand as its unit sales averaged 11.8% growth over the past two years
- Demand for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust revenue growth of 22.8%
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 15.5% annually
The Ensign Group is trading at $183.85 per share, or 25x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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