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.
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 deliver strong gains and two that may struggle to keep up.
Two Stocks to Sell:
Luxfer (LXFR)
Market Cap: $320.7 million
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE: LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Is LXFR Risky?
- Muted 1.6% annual revenue growth over the last one years shows its demand lagged behind its industrials peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.7 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Luxfer is trading at $11.95 per share, or 11.4x forward P/E. If you’re considering LXFR for your portfolio, see our FREE research report to learn more.
Grid Dynamics (GDYN)
Market Cap: $1.18 billion
With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ: GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.
Why Are We Hesitant About GDYN?
- Modest revenue base of $371.2 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Earnings per share fell by 8.5% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Push for growth has led to negative returns on capital, signaling value destruction
Grid Dynamics’s stock price of $14.07 implies a valuation ratio of 35.6x forward P/E. Read our free research report to see why you should think twice about including GDYN in your portfolio.
One Stock to Buy:
Alignment Healthcare (ALHC)
Market Cap: $3.12 billion
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ: ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Should You Buy ALHC?
- Business is winning new contracts that can potentially increase in value as its customer base averaged 38.8% growth over the past two years
- Notable projected revenue growth of 34.7% for the next 12 months hints at market share gains
- Earnings per share have massively outperformed its peers over the last three years, increasing by 28.3% annually
At $15.65 per share, Alignment Healthcare trades at 56.4x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
