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.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Semtech (SMTC)
Market Cap: $3.39 billion
A public company since the late 1960s, Semtech (NASDAQ:SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.
Why Should You Dump SMTC?
- Persistent operating margin losses and eroding margin over the last five years point to its preference for growth over profits
- Free cash flow margin dropped by 6.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
Semtech is trading at $39.26 per share, or 22.6x forward P/E. Read our free research report to see why you should think twice about including SMTC in your portfolio.
United Bankshares (UBSI)
Market Cap: $4.99 billion
With roots dating back to 1982 and a strong presence in the Mid-Atlantic region, United Bankshares (NASDAQ:UBSI) is a bank holding company that provides commercial and retail banking services through its United Bank subsidiary across multiple states.
Why Do We Think Twice About UBSI?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- 6.4% annual net interest income growth over the last four years was slower than its bank peers
- Muted 7.3% annual tangible book value per share growth over the last two years shows its capital generation lagged behind its bank peers
At $35.15 per share, United Bankshares trades at 0.9x forward P/B. If you’re considering UBSI for your portfolio, see our FREE research report to learn more.
Walker & Dunlop (WD)
Market Cap: $2.32 billion
Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE:WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.
Why Does WD Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.6% annually over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 3.6% annually
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 3.9% annually over the last five years
Walker & Dunlop’s stock price of $68.32 implies a valuation ratio of 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than WD.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today