Many investors in small- and mid-cap stocks are not participating in whatever gains the market has seen in the last 18 months. But history consistently shows that when markets recover, it’s these stocks that tend to lead the way. That’s why it’s a good time to look at undervalued Russell 2000 stocks. Typically considered a “small-cap” index, the Russell 2000 index tracks the performance of both small- and mid-cap stocks. 

So why should you believe in investing in small- and mid-cap stocks right now? Two words: rate cuts. The Federal Reserve has consistently said it will be data driven before making a decision. That’s fine. But anyone who’s a sports fan knows that when analytics come into play, data is only as good as the perspective of those viewing the data.  

The point is that it won’t take much to “convince” the Fed that a rate cut may be in order. And when that happens, one of the quieter bull markets in the last 50 years may start to pick up steam. In that case, you’ll be glad you looked for undervalued Russell 2000 stocks today.  

Boise Cascade (BCC) 

The housing sector would be an obvious beneficiary of an interest rate cut. However, while a rate cut would stimulate demand, a company like Boise Cascade (NYSE:BCC) is working on the supply side of the equation. The company manufactures wood products and distributes a variety of building materials for the residential and commercial construction markets.  

If you followed Warren Buffett’s buying patterns, you might already be profiting from BCC stock today. That’s because Buffett bought the stock of several homebuilders in December. And after year-over-year revenue and earnings declines in 2023, the numbers are turning around, particularly in the residential sector. That said, the numbers are still below those of 2022 while the stock is up 77.6% in the last 12 months.  

Generally, stocks that are up by 77% are not considered undervalued, and analysts do have a consensus Hold on the stock. Plus, BCC stock is down about 2.7% since the company posted a double beat in its Q1 2024 earnings report. Nevertheless, two out of seven analysts give the stock a Strong Buy rating and the stock carries a high price target of $212. The wildcard for that number to come into play is rate cuts that would stimulate both homebuyers and homebuilders.  

Abercrombie & Fitch (ANF) 

Inflation-adjusted retail spending has been flat if not slightly negative in the past year. That makes the performance of Abercrombie & Fitch (NYSE:ANF) stand out. And it’s why the retailer makes this list of undervalued Russell 2000 stocks.  

Facing difficult comparisons to 2023 when many retail stock inexplicably outperformed their 2022 numbers, Abercrombie just delivered a double beat with earnings per share (EPS) of $2.14 outperforming the prior year by a whopping 448%.  

However, if you’re going to buy a stock that’s up nearly 95% in 2024 alone, you’ll need to understand why it could be undervalued. For that, you have to look at the company’s core audience which skews younger and more affluent. They have the disposable income (and likely the 3%-ish mortgage) that allows them to manage through inflation. It’s a bifurcated economy, but it’s not up to investors to pick winners and losers. We can, however, profit from knowing which is which.  

Korn Ferry (KFY) 

Employment is another area that’s likely to get a boost from lower interest rates. That could make Korn Ferry (NYSE:KFY) a solid strategic choice for investors. The company operates in four segments: Consulting, Digital, Executive Search, and Professional Search & Interim.  

In the company’s March 2024 earnings report, it posted fairly solid numbers in each category with the exception of Executive Search. Revenue was only down 6%. However, that category makes up 30% of the company’s fee revenue. The good news is that the margins for the segment were higher from the prior quarter. The company cites strong cost control and higher consultant productivity as reasons for the gains. 

Despite that category weakness, KFY stock is still up 32% in the last 12 months. If the Federal Reserve were to cut in interest rates, even if only by 25 basis points, it would be a positive sign for the labor market. And if Korn Ferry can turn a weakness into a strength, the stock is likely to move sharply higher. 

On the date of publication, Chris Markoch 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.