1 Russell 2000 Stock for Long-Term Investors and 2 We Brush Off

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 the next big thing and two best left off your watchlist.

Two Stocks to Sell:

EnerSys (ENS)

Market Cap: $5.10 billion

Supplying batteries that power equipment as big as mining rigs, EnerSys (NYSE:ENS) manufactures various kinds of batteries for a range of industries.

Why Is ENS Not Exciting?

1. Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Anticipated sales growth of 1.6% for the next year implies demand will be shaky
3. Gross margin of 26.1% reflects its high production costs

At $139 per share, EnerSys trades at 12.6x forward P/E. To fully understand why you should be careful with ENS, check out our full research report (it’s free for active Edge members).

Standex (SXI)

Market Cap: $2.78 billion

Holding over 500 patents globally, Standex (NYSE:SXI) is a manufacturer and distributor of industrial components for various sectors.

Why Are We Wary of SXI?

1. Muted 6% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.4 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Standex’s stock price of $229.31 implies a valuation ratio of 25.6x forward P/E. If you’re considering SXI for your portfolio, see our FREE research report to learn more.

One Stock to Buy:

CECO Environmental (CECO)

Market Cap: $1.79 billion

With roots dating back to 1869 and a focus on creating cleaner industrial operations, CECO Environmental (NASDAQ:CECO) provides technology and expertise that helps industrial companies reduce emissions, treat water, and improve energy efficiency across various sectors.

Why Is CECO a Top Pick?

1. Annual revenue growth of 19% over the last two years was superb and indicates its market share increased during this cycle
2. Adjusted operating margin improvement of 11.4 percentage points over the last five years demonstrates its ability to scale efficiently
3. Historical investments are beginning to pay off as its returns on capital are growing

CECO Environmental is trading at $50.15 per share, or 38.5x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .

High-Quality Stocks for All Market Conditions

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