1 Russell 2000 Stock for Long-Term Investors and 2 Facing Headwinds

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 deliver strong gains and two that may face some trouble.

Two Stocks to Sell:

Hilltop Holdings (HTH)

Market Cap: $2.29 billion

Transformed from a residential communities business to a financial services powerhouse in 2007, Hilltop Holdings (NYSE:HTH) is a Texas-based financial holding company that provides banking, broker-dealer, and mortgage origination services.

Why Do We Avoid HTH?

1. Loans are facing end-market challenges during this cycle, as seen in its flat net interest income over the last five years
2. Overall productivity is expected to decrease over the next year as Wall Street thinks its efficiency ratio will degrade by 32.3 percentage points
3. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 15% annually, worse than its revenue

Hilltop Holdings’s stock price of $38.59 implies a valuation ratio of 1x forward P/B. Dive into our free research report to see why there are better opportunities than HTH.

Atmus Filtration Technologies (ATMU)

Market Cap: $5.24 billion

Spun out of Cummins in 2023 after 65 years as part of the engine maker, Atmus Filtration Technologies (NYSE:ATMU) manufactures filters for trucks, construction equipment, and agriculture machinery to reduce emissions and protect engines.

Why Does ATMU Fall Short?

1. 4.1% annual revenue growth over the last two years was slower than its industrials peers
2. Gross margin of 26.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Free cash flow margin shrank by 3.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Atmus Filtration Technologies is trading at $64.26 per share, or 21.7x forward P/E. Check out our free in-depth research report to learn more about why ATMU doesn’t pass our bar.

One Stock to Buy:

Baldwin Insurance Group (BWIN)

Market Cap: $1.62 billion

Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ:BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.

Why Do We Love BWIN?

1. Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 13.6% over the past two years
2. Adjusted operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
3. Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 22.5% annually

At $17.36 per share, Baldwin Insurance Group trades at 9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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