3 Russell 2000 Stocks We Approach with Caution

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.

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 three Russell 2000 stocks to avoid and better alternatives to consider.

Wolverine Worldwide (WWW)

Market Cap: $1.53 billion

Founded in 1883, Wolverine Worldwide (NYSE:WWW) is a global footwear company with a diverse portfolio of brands including Merrell, Hush Puppies, and Saucony.

Why Do We Think WWW Will Underperform?

1. Sales were flat over the last five years, indicating it’s failed to expand its business
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 7.2% for the last two years
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Wolverine Worldwide’s stock price of $18.74 implies a valuation ratio of 14.3x forward P/E. If you’re considering WWW for your portfolio, see our FREE research report to learn more.

Insteel (IIIN)

Market Cap: $642 million

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.

Why Are We Hesitant About IIIN?

1. Flat sales over the last two years suggest it must find different ways to grow during this cycle
2. Free cash flow margin dropped by 5.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Waning returns on capital imply its previous profit engines are losing steam

Insteel is trading at $32.95 per share, or 11.3x forward P/E. To fully understand why you should be careful with IIIN, check out our full research report (it’s free for active Edge members).

First Merchants (FRME)

Market Cap: $2.25 billion

Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ:FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.

Why Do We Steer Clear of FRME?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Net interest income trends were unexciting over the last five years as its 7.1% annual growth was below the typical banking firm
3. Earnings per share fell by 3.7% annually over the last two years while its revenue was flat, showing each sale was less profitable

At $39.00 per share, First Merchants trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including FRME in your portfolio.

Stocks We Like More

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% 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.