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 are two Russell 2000 stocks that could deliver strong gains and one that may face some trouble.
One Stock to Sell:
Resideo (REZI)
Market Cap: $2.76 billion
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Do We Steer Clear of REZI?
- Muted 5.8% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Free cash flow margin shrank by 20.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital imply its previous profit engines are losing steam
Resideo is trading at $18.15 per share, or 10x forward P/E. To fully understand why you should be careful with REZI, check out our full research report (it’s free).
Two Stocks to Watch:
UMB Financial (UMBF)
Market Cap: $9.86 billion
With roots dating back to 1913 and a name derived from "United Missouri Bank," UMB Financial (NASDAQ: UMBF) is a financial holding company that provides banking, asset management, and fund services to commercial, institutional, and individual customers.
Why Do We Like UMBF?
- Annual revenue growth of 38.1% over the past two years was outstanding, reflecting market share gains this cycle
- Annual net interest income growth of 21.7% over the past five years was outstanding, reflecting market share gains this cycle
- Net interest margin grew by 78.4 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more chips to play with
At $129.81 per share, UMB Financial trades at 1.2x forward P/B. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
SM Energy (SM)
Market Cap: $8.34 billion
Operating across three key regions with over 328,000 net acres under its control, SM Energy (NYSE: SM) explores for, develops, and produces oil, natural gas, and natural gas liquids primarily from shale formations in Texas and Utah.
Why Is SM a Good Business?
- Annual revenue growth of 16.7% over the last ten years was superb and indicates its market share increased during this cycle
- Attractive asset base leads to wonderful unit economics and a best-in-class gross margin of 86.8%
- SM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
SM Energy’s stock price of $35.04 implies a valuation ratio of 4.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
