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 are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.
Select Medical (SEM)
Market Cap: $1.98 billion
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Why Do We Think SEM Will Underperform?
- Declining admissions over the past two years indicate demand is soft and that the company may need to revise its strategy
- Forecasted revenue decline of 11.6% for the upcoming 12 months implies demand will fall even further
- Free cash flow margin dropped by 13.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $15.41 per share, Select Medical trades at 13.2x forward P/E. If you’re considering SEM for your portfolio, see our FREE research report to learn more.
Amphastar Pharmaceuticals (AMPH)
Market Cap: $1.27 billion
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Are We Wary of AMPH?
- Revenue base of $730.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
Amphastar Pharmaceuticals is trading at $26.92 per share, or 8.2x forward P/E. Read our free research report to see why you should think twice about including AMPH in your portfolio.
Dime Community Bancshares (DCOM)
Market Cap: $1.21 billion
With roots dating back to 1910 and a strong presence across New York City's boroughs and Long Island, Dime Community Bancshares (NASDAQ: DCOM) is a New York-based bank holding company that provides commercial banking and financial services to businesses and consumers throughout Greater Long Island.
Why Are We Cautious About DCOM?
- Annual sales declines of 10.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Net interest margin shrank by 51.7 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the yields on its loan book are decreasing or the market is becoming more competitive
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
Dime Community Bancshares’s stock price of $27.60 implies a valuation ratio of 0.9x forward P/B. Dive into our free research report to see why there are better opportunities than DCOM.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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.
