The Russell 2000 Index has long been known as the best way to track the small to mid-cap investing universe. The index measures the performance of about 2,000 of the smallest publicly traded companies in the United States. It boasts a 15-year return of 8.36%. Numerous investors often look to it in order to capitalize off its performance through buying low-cost mutual funds and ETFs that track the index. Having said that, the idea of stocks that could beat the Russell 2000 sounds appealing.
Other investors identify specific companies within the Russell 2000 that are growing at fast rates to beat well-known indexes. While many prefer to use the Standards and Practices (S&P) 500 to find stable long-term companies, the Russell 2000 presents countless low-cost opportunities that demonstrate higher volatility and higher returns. In this article, we will be highlighting three stocks that could beat the Russell 2000.
Bar Harbor Bankshares, Inc. (BHB)
Bar Harbor Bankshares, Inc. (NYSE:BHB) is a small regional bank based in Bar Harbor, Maine. Recently joining the Russell 2000 in 2015, it sits at a market cap of $355.71 million. It operates more than 50 branches across Maine, New Hampshire and Vermont. There has been a recent drawdown on regional bank stocks due to increasing interest rates and resultant pressures on bank balance sheets. Despite that Bar Harbor Bankshares has since recovered from its almost 35% drop in March. Yahoo Finance Analysts project its one-year price target to be a very conservative $27-$28. This it at around an expected 15-20% growth. However, with its current position of high profitability, 4.4% dividend yield, and slight undervaluation, I think Bar Harbor Bankshares has even more room to be one of the stocks that can beat the Russell 2000.
In the most recent Q2 earnings, BHB has demonstrated its continued profitability. It did so with a net interest margin of 3.2% and a core return on equity of 15.2% (albeit down from its high of 19% in Q4 2022). BHB;s loan book continues to show strength. It does so with commercial real estate loans increasing by 9% in Q2 and 8% YTD, and Commercial and industrial loans increased by 26% in Q2 and 20% YTD. Its valuation is modestly discounted, sitting at around 7.48 times P/E compared to its industry median of 8.26 times. As I see it, Bar Harbor Bankshares has already begun its rally back to the upside. Investors should keep this stock on the lookout for a strong growing company that could beat the Russell 2000 with its terrific margins and dividend yield.
Super Micro Computer, Inc. (SMCI)
Super Micro Computer, Inc. (NASDAQ:SMCI) is a company in the business of selling computer hardware products and servers to other companies. It is a part of the Russel 2000 and currently sits at a market cap of $15.28 billion. This company has worked with NVIDIA in the past and is heavily involved in the AI market. The stock is up a staggering 406.15% in the past year alone. Eight analysts predict a one-year price target of around $347 from its current price of $288.86.
This growth has not occurred for no reason. Fueled by high-growth tech trends such as cloud computing, artificial intelligence, blockchain and autonomous vehicles, SMCI’s EPS has grown from $0.94 in 2018 to $12.09 in 2023. This is an average yearly growth of 66%. Analysts expect this trend to continue, with EPS expected to hit $19.65 in the next two years. Due to SCMI’s high growth. Its FWD P/E of 17.94 times is far below the industry average of 25.01, meaning that for the growth being offered, SMCI is trading at a discount to its peers. With AI continuing to show signs of growth and development, SCMI will no doubt serve as a cheap addition to any investor’s portfolio that could outperform the Russell 2000.
Chart Industries, Inc. (GTLS)
Chart Industries, Inc. (NYSE: GTLS) is a company that provides engineered equipment that is used for the production of industrial gas. It is a mid-cap company that has a market cap of $7.12 billion. While GTLS was recently dropped from the Russell 2000 in 2022, its strong financials position it to outperform the index. This is true even if it is no longer a part of it.
Although its EPS has decreased in the past few years, analysts expect its EPS to explode. This should happen thanks to its 2022 EPS sitting at $0.62 and expectations of hitting $10.36 in just the next two years. This is a massive average growth of more than 300%. This massive growth also presents the company with an attractive valuation considering its less than one PEG of 0.58 times. While GTLS may be more of a risky bet, it has room for tons of upside potential to beat the Russell 2000.
On the date of publication, Ian Hartana and Vayun Chugh did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
