The myth of the Russell 2000 index is that it's a small-cap index. In reality, the index focuses on both small-and mid-cap stocks. What's not a myth is that the Russell 2000 includes many companies in the early growth stage — some of which have been negatively impacted by rising interest rates.
But these stocks are also the most likely to benefit from an interest rate cut. Not only will their borrowing costs be lower, but consumer-facing companies may benefit if consumers become more willing to spend.
That's the calculation that some money managers are making. And you hear it in words like "sector rotation." For much of 2023 and 2024, technology stocks were the best names in town. However, in a falling interest rate environment, other sectors may become more attractive. That includes small- and mid-cap stocks that are part of the Russell 2000.
In this special presentation, we're looking at seven Russell 2000 stocks that are showing solid upside growth for investors to consider.
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- Bloomin’ Brands
- Leggett & Platt
- e.l.f. Beauty
- Marathon Holdings
- Northern Oil and Gas
- Box
- Oscar Health
#1 - Bloomin’ Brands (NASDAQ:BLMN)
Restaurant stocks have been among the worst performers in 2024. The reopening bounce is long over, and many consumers (particularly low- to middle-income consumers) find eating at home to be more affordable than eating out.
That explains why shares of Bloomin’ Brands Inc. (NASDAQ: BLMN) are down 34% in 2024. But most of that loss has come since the company’s first quarter earnings report in May. Both revenue and earnings were down year-over-year, and earnings missed analysts’ expectations by five cents.
It wasn’t horrible, but enough for investors to step away from a stock that was trading near its five-year high. That said, institutional investors are stepping back into the stock. That's most likely being done with an eye toward rate cuts.
The parent company of brands such as Outback Steakhouse, Bonefish Grill and Carrabba’s Italian Grill still has a lot to like. It starts with a forward price-to-earnings (P/E) ratio of 8.15x. And the stock’s dividend pays an attractive dividend yield of 5.06%.
About Bloomin' Brands
Bloomin' Brands, Inc, through its subsidiaries, owns and operates casual, upscale casual, and fine dining restaurants in the United States and internationally. The company operates through two segments, U.S. and International. Its restaurant portfolio has four concepts, including Outback Steakhouse, a casual steakhouse restaurant; Carrabba's Italian Grill, a casual Italian restaurant; Bonefish Grill; and Fleming's Prime Steakhouse & Wine Bar, a contemporary steakhouse.
Read More - Current Price
- $17.10
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $22.33 (30.6% Upside)
#2 - Leggett & Platt (NYSE:LEG)
Leggett & Platt Inc. (NYSE: LEG) is closely tied to the home furnishings market. The company designs and manufactures engineered components and products for a variety of markets. However, the company relies heavily on home furnishing and automotive markets.
That's a key reason why LEG stock is down approximately 80% in the last three years. And recently, the company cut its dividend payment, removing it from the rank of dividend kings. The good news is that Leggett plans to use that freed-up capital to pay down debt and invest in growth.
But what the company really needs is improvement in the top line. And for that, it needs an improved housing market. As the June read on new home sales shows, that won't happen right away. But it also adds fuel to the argument for rate cuts, perhaps as early as September.
Short interest is up 62% in the 30 days ending July 24, 2024. That means LEG stock could have limited upside in the short term. It will take a strong stomach to hold the stock, but this could be a time to take a small position.
About Leggett & Platt
Leggett & Platt, Incorporated designs, manufactures, and sells engineered components and products in the United States, Europe, China, Canada, Mexico, and internationally. It operates through three segments: Bedding Products; Specialized Products; and Furniture, Flooring & Textile Products. The company offers steel rods, drawn wires, specialty foam chemicals and additives, innersprings, specialty foam for use in bedding and furniture, private label finished mattresses, ready-to-assemble mattress foundations, static foundations, and adjustable beds, as well as machines for producing innersprings; industrial sewing and quilting machines; mattress-packaging; and glue-drying equipment for various industrial users of steel rod and wire, manufacturers of finished bedding, bedding brands and mattress retailers, E-commerce retailers, big box retailers, department stores, and home improvement centers.
Read More - Current Price
- $12.84
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $12.67 (1.3% Downside)
#3 - e.l.f. Beauty (NYSE:ELF)
The skincare and cosmetics industry is showing why it’s an evergreen sector for investors. For example, Ulta Beauty Inc. (NYSE: ULTA) stock is down 20% this year but has hit its all-time high twice in the last 52 weeks. But with a market cap of around $17.5 billion, you won’t find ULTA stock in the Russell 2000.
You will, however, find e.l.f. Beauty Inc. (NYSE: ELF) in the Russell 2000. The company’s brand positioning focuses on high-quality products at affordable prices. The company’s authenticity is popular with millennial and Gen-Z consumers.
If you had just $1,000 in the stock five years ago, that would be worth over $10,400 as of July 24, 2024. However, ELF stock is up 20% despite having a forward P/E ratio of 61x. That leads to questions of whether the stock can maintain its momentum. Analysts certainly believe it can—the e.l.f. Beauty analyst ratings on MarketBeat give the stock a consensus price target of $210, which is 20% higher than its current level.
About e.l.f. Beauty
e.l.f. Beauty, Inc, together with its subsidiaries, provides cosmetic and skin care products under the e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare brand names worldwide. The company offers eye, lip, face, face, paw, and skin care products. It sells its products through national and international retailers and direct-to-consumer channels, which include e-commerce platforms in the United States, and internationally primarily through distributors.
Read More - Current Price
- $113.17
- Consensus Rating
- Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $198.80 (75.7% Upside)
#4 - Marathon Holdings (NASDAQ:MARA)
Markets tend to be agnostic about an election's outcome. That said, Marathon Digital Holdings Inc. (NASDAQ: MARA) is clearly part of a Trump trade. With Donald Trump and, more importantly, his running mate, JD Vance, promoting a crypto-friendly administration, some investors think that a Trump-Vance administration would support an expansionary regulatory policy for Bitcoin and other digital currencies.
That belief had shares of MARA shooting up nearly 40% during the week of the Republican National Convention in July. However, that surge is mainly gone. That means the fortunes of the world’s largest Bitcoin miner will ultimately come down to the price of Bitcoin. That’s been a volatile but mostly profitable trade this year. And Marathon’s operational hash rate (which measures the computational power of its blockchain network) has surged 106% year-over-year.
From a fundamental perspective, Marathon is sitting on a healthy $1.15 billion in cash as it prepares to expand into mining other tokens. The company is not profitable and won’t be anytime soon, but lower interest rates will make that more palatable for investors, particularly if it continues to grow its YOY revenue.
About Marathon Digital
Marathon Digital Holdings, Inc operates as a digital asset technology company that mines digital assets with a focus on the bitcoin ecosystem in United States. The company was formerly known as Marathon Patent Group, Inc and changed its name to Marathon Digital Holdings, Inc in February 2021. Marathon Digital Holdings, Inc was incorporated in 2010 and is headquartered in Fort Lauderdale, Florida.
- Current Price
- $15.87
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $19.22 (21.1% Upside)
#5 - Northern Oil and Gas (NYSE:NOG)
At first glance, you might say that Northern Oil and Gas Inc. (NYSE: NOG) is also part of a Trump trade. The former president has made it clear that his administration would be more receptive to oil and gas exploration. But the case for NOG stock cuts across party lines.
The reality of oil is that the world will continue to need it for decades, even as a genuine conversion to renewable energy is underway. Northern Oil and Gas owns several attractive properties in the Williston, Permian, and Appalachian basins.
NOG stock trades at around 7x earnings and is up approximately 4% in 2024. The company also pays a dividend of 40 cents per share, with a dividend yield of 4.1%.
Plus, analysts are bidding the stock higher. The NOG analyst forecasts on MarketBeat show that Truist Financial Corp. (NYSE: TFC) issued a price target of $54 on the stock on July 22. While that’s $3 lower than its previous price, it’s still over 10% higher than the consensus price.
About Northern Oil and Gas
Northern Oil and Gas, Inc, an independent energy company, engages in the acquisition, exploration, exploitation, development, and production of crude oil and natural gas properties in the United States. It primarily holds interests in the Williston Basin, the Appalachian Basin, and the Permian Basin in the United States.
Read More - Current Price
- $34.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $47.78 (36.9% Upside)
#6 - Box (NYSE:BOX)
Until this point, the stocks on this list have been outside of the technology sector. However, Box Inc. (NYSE: BOX) is an example of how you can still find growth at a reasonable price. Box is a software-as-a-service (SaaS) company that specializes in cloud storage and file sharing. Specifically, the company’s platforms allow organizations to manage their entire content lifecycle while working securely from anywhere.
The founder-led company focuses on enterprise customers. That’s one way that Box differentiates itself from competitors like Dropbox. The company has solid YOY topline growth, but with a market cap of around $3.8 billion, investors are finding large-cap tech stocks more tempting than BOX.
Analysts suggest that may be a bad idea. The Box analyst forecasts on MarketBeat give BOX stock a consensus price target of $30. It’s also important to note that institutional investors have been buying the stock over the last three quarters.
About BOX
Box, Inc provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. The company's Software-as-a-Service platform enables users to work with their content as they need from secure external collaboration and sharing, workspaces and portals, e-signature processes, and content workflows improving employee productivity and accelerating business processes.
Read More - Current Price
- $33.45
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $31.22 (6.7% Downside)
#7 - Oscar Health (NYSE:OSCR)
The last stock on this list is that of Oscar Health Inc. (NYSE: OSCR). The company is committed to making health insurance accessible and affordable for all Americans. Over one million members are covered by its health plans, such as +Oscar which uses AI to assist providers and payors in their shift to value-based care.
Oscar has been growing YOY revenue at an impressive pace, and the company just turned in its first profitable quarter. However, the stock is down approximately 12% after earnings on concerns that the company may lose the advanced premium tax credits (APTCs) that are subsidizing 85% of the its policy premiums. That won’t happen until 2026, if it happens at all.
On the bullish side, investors can look at the company’s rising membership base, controlled pricing strategies, and a Medical Loss Ratio (MLR) of 74.2%. This ratio is a measure of how well the company manages healthcare expenses in relation to premium income.
About Oscar Health
Oscar Health, Inc operates as a health insurance in the United States. The company offers health plans in individual and small group markets, as well as +Oscar, a technology driven platform that help providers and payors directly enable their shift to value-based care. It also provides reinsurance products.
Read More - Current Price
- $21.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $24.17 (10.2% Upside)
Should you invest in one or more of these Russell 2000 stocks right now? Of course your personal investment style and risk tolerance will have a lot to do with that, but you should also pay close attention to the upcoming inflation readings.
Federal Reserve Chair Jerome Powell has repeatedly said the central bank isn't going to wait until the inflation rate reaches its 2% target. That means the Fed could start cutting as soon as the readings come in with a number below 3%.
And when the Fed cuts, investors will be stepping on the gas. That's why now may be a time to consider getting into these stocks. If the argument for small-cap stocks makes sense to you, but you don't want to pick individual stocks, you can consider an exchange-traded fund (ETF) such as the iShares Russell 2000 ETF (NYSEARCA: IWM), which tracks the performance of the Russell 2000 index.
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