1 Russell 2000 Stock for Long-Term Investors and 2 We Find Risky

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 be the next big thing and two that may face some trouble.

Two Stocks to Sell:

USANA (USNA)

Market Cap: $362.9 million

Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE:USNA) manufactures and sells nutritional, personal care, and skincare products.

Why Are We Hesitant About USNA?

1. Products aren't resonating with the market as its revenue declined by 4.2% annually over the last three years
2. Forecasted revenue decline of 1.9% for the upcoming 12 months implies demand will fall even further
3. Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 20.9% annually, worse than its revenue

USANA’s stock price of $19.85 implies a valuation ratio of 11.5x forward P/E. Dive into our free research report to see why there are better opportunities than USNA.

Helios (HLIO)

Market Cap: $2.01 billion

Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.

Why Do We Think HLIO Will Underperform?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Helios is trading at $60.60 per share, or 20.7x forward P/E. To fully understand why you should be careful with HLIO, check out our full research report (it’s free).

One Stock to Buy:

Coastal Financial (CCB)

Market Cap: $1.77 billion

Pioneering the intersection of traditional banking and financial technology in the Pacific Northwest, Coastal Financial (NASDAQ:CCB) operates as a bank holding company that provides traditional banking services and Banking-as-a-Service (BaaS) solutions to consumers and businesses.

Why Are We Backing CCB?

1. Annual net interest income growth of 42.5% over the past five years was outstanding, reflecting market share gains this cycle
2. Differentiated product suite results in a Strong performance of its loan book leads to a High-yielding loan book and low cost of funds are reflected in its best-in-class net interest margin of 7.2%
3. Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 22.2% annually

At $116.52 per share, Coastal Financial trades at 3.7x forward P/B. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

High-Quality Stocks for All Market Conditions

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