1 Russell 2000 Stock for Long-Term Investors and 2 That Underwhelm

Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.

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 a breakout winner and two best left off your watchlist.

Two Stocks to Sell:

Rogers (ROG)

Market Cap: $1.91 billion

With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE:ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.

Why Are We Out on ROG?

1. Annual sales declines of 5.5% for the past two years show its products and services struggled to connect with the market during this cycle
2. Efficiency has decreased over the last five years as its operating margin fell by 8.1 percentage points
3. Earnings per share have dipped by 13.9% annually over the past five years, which is concerning because stock prices follow EPS over the long term

Rogers’s stock price of $107.16 implies a valuation ratio of 32.6x forward P/E. Dive into our free research report to see why there are better opportunities than ROG.

Encore Capital Group (ECPG)

Market Cap: $1.30 billion

Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ:ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.

Why Are We Cautious About ECPG?

1. Annual revenue growth of 1.3% over the last five years was below our standards for the financials sector
2. Earnings per share fell by 15.9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. High net-debt-to-EBITDA ratio of 11× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Encore Capital Group is trading at $58.10 per share, or 7.8x forward P/E. Check out our free in-depth research report to learn more about why ECPG doesn’t pass our bar.

One Stock to Buy:

CLEAR Secure (YOU)

Market Cap: $3.26 billion

Recognized by its signature blue lanes and biometric pods at airport checkpoints across America, CLEAR Secure (NYSE:YOU) provides biometric identity verification technology that allows subscribers to bypass regular security lines at airports and access secure experiences at various venues.

Why Are We Backing YOU?

1. Annual revenue growth of 23.2% over the last two years was superb and indicates its market share is rising
2. Superior software functionality and low servicing costs lead to a best-in-class gross margin of 86%
3. Healthy operating margin of 19.2% shows it’s a well-run company with efficient processes, and its rise over the last year was fueled by some leverage on its fixed costs

At $33.25 per share, CLEAR Secure trades at 3.3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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