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.
Novanta (NOVT)
Market Cap: $5.54 billion
Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.
Why Are We Wary of NOVT?
- Sales trends were unexciting over the last two years as its 6.1% annual growth was below the typical industrials company
- Anticipated sales growth of 6.5% for the next year implies demand will be shaky
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.3% annually
At $146.77 per share, Novanta trades at 39x forward P/E. Dive into our free research report to see why there are better opportunities than NOVT.
Meritage Homes (MTH)
Market Cap: $5.01 billion
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Do We Pass on MTH?
- Sales tumbled by 5.8% annually over the last two years, showing market trends are working against it during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
Meritage Homes’s stock price of $75.27 implies a valuation ratio of 13.8x forward P/E. Read our free research report to see why you should think twice about including MTH in your portfolio.
Fulton Financial (FULT)
Market Cap: $4.67 billion
Tracing its roots back to 1882 in the heart of Pennsylvania, Fulton Financial (NASDAQ: FULT) is a financial holding company that provides banking, lending, and wealth management services to consumers and businesses across five Mid-Atlantic states.
Why Do We Think Twice About FULT?
- Sales trends were unexciting over the last five years as its 8.9% annual growth was below the typical banking company
- Annual earnings per share growth of 6.6% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Projected tangible book value per share growth of 9.2% for the next 12 months suggests sluggish capital generation
Fulton Financial is trading at $25.32 per share, or 1.2x forward P/B. Check out our free in-depth research report to learn more about why FULT doesn’t pass our bar.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
