The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.
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 avoid and better alternatives to consider.
WSFS Financial (WSFS)
Market Cap: $4.10 billion
Founded in 1832 as Wilmington Savings Fund Society and one of the oldest banks in America still operating under its original name, WSFS Financial (NASDAQ:WSFS) operates a community banking and wealth management franchise primarily serving customers in the Mid-Atlantic region through its main subsidiary, WSFS Bank.
Why Are We Hesitant About WSFS?
- 4.1% annual revenue growth over the last two years was slower than its banking peers
- Estimated net interest income growth of 5% for the next 12 months implies demand will slow from its five-year trend
- Annual earnings per share growth of 2.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable
WSFS Financial is trading at $79.85 per share, or 1.5x forward P/B. If you’re considering WSFS for your portfolio, see our FREE research report to learn more.
NBT Bancorp (NBTB)
Market Cap: $2.75 billion
Tracing its roots back to 1856 when it first opened its doors in Norwich, New York, NBT Bancorp (NASDAQ:NBTB) is a community-oriented financial institution providing banking, wealth management, and insurance services to individuals and businesses across the northeastern United States.
Why Are We Cautious About NBTB?
- 9.7% annual revenue growth over the last five years was slower than its banking peers
- Estimated net interest income growth of 5.9% for the next 12 months implies demand will slow from its five-year trend
- Annual earnings per share growth of 3% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $52.93 per share, NBT Bancorp trades at 1.4x forward P/B. Read our free research report to see why you should think twice about including NBTB in your portfolio.
First Commonwealth Financial (FCF)
Market Cap: $2.17 billion
Tracing its roots back to the Great Depression era of 1934, First Commonwealth Financial (NYSE:FCF) is a financial holding company that provides consumer and commercial banking, wealth management, and insurance services across Pennsylvania and Ohio.
Why Does FCF Give Us Pause?
- Muted 6.7% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Estimated net interest income growth of 5.9% for the next 12 months implies demand will slow from its five-year trend
- Performance over the past two years shows its incremental sales were less profitable, as its 2.2% annual earnings per share growth trailed its revenue gains
First Commonwealth Financial’s stock price of $21.59 implies a valuation ratio of 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than FCF.
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