1 Russell 2000 Stock Worth Your Attention and 2 We Brush Off

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. Keeping that in mind, here is one Russell 2000 stock that could be the next big thing and two that may face some trouble.

Two Stocks to Sell:

Leggett & Platt (LEG)

Market Cap: $1.49 billion

Founded in 1883, Leggett & Platt (NYSE:LEG) is a diversified manufacturer of products and components for various industries.

Why Should You Dump LEG?

1. Flat sales over the last five years suggest it must innovate and find new ways to grow
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Leggett & Platt is trading at $11 per share, or 10.1x forward P/E. To fully understand why you should be careful with LEG, check out our full research report (it’s free for active Edge members).

Richardson Electronics (RELL)

Market Cap: $157.7 million

Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Why Are We Out on RELL?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 2% declines over the past two years
2. Low free cash flow margin of -0.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $10.45 per share, Richardson Electronics trades at 60.8x forward P/E. Read our free research report to see why you should think twice about including RELL in your portfolio.

One Stock to Watch:

Energy Recovery (ERII)

Market Cap: $714.6 million

Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ:ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.

Why Are We Positive On ERII?

1. Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 67.6%
2. Share buybacks catapulted its annual earnings per share growth to 42.6%, which outperformed its revenue gains over the last two years
3. Free cash flow margin jumped by 6.3 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

Energy Recovery’s stock price of $13.55 implies a valuation ratio of 15.9x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.

Stocks We Like Even 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-micro-cap company Tecnoglass (+1,754% 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.