If you’re looking for an index to buy-and-hold, you shouldn’t consider the Russell 2000. It makes no sense to follow a benchmark that has historically underperformed the S&P 500 and Nasdaq Composite for many years.
However, this same underperforming index offers great investment opportunities. Stocks often find themselves in the Russell 2000 long before they end up in the S&P 500 or the Nasdaq 100. Supermicro (NASDAQ:SMCI) is a recent and noteworthy example.
The AI beneficiary was in the Russell 2000 long before it joined the S&P 500 or the Nasdaq 100. Interestingly, Supermicro is down ever since it joined the S&P 500 and the Nasdaq 100. Although a 150% year-to-date gain looks impressive, most of those gains got recorded by mid-February. The stock’s 3,700% gain over the past five years is more captivating, but investors who ignored the Russell 2000 missed out on those returns.
Not every stock can achieve returns like Supermicro, but these Russell 2000 stocks look like rising stars.
Beazer Homes (BZH)
Beazer Homes (NYSE:BZH) has the valuation and growth prospects to generate sizable returns. The stock has done just that over the years, roughly tripling over the past five years. The home construction company has a $1 billion market cap and trades at a generous 6.5 P/E ratio.
Revenue was flat YOY in the second quarter of fiscal 2024, but that same quarter also featured 13% YOY net income growth. The company profits came to $39.2 million, resulting in a 7.2% net profit margin. Beazer Homes received 1,299 new orders which was a 10.0% YOY increase. The home construction company now has a $1.08 billion backlog, representing 2,046 homes.
Beazer Homes is poised to benefit from the Federal Reserve’s pending interest rate cuts. While this cuts likely won’t be as pronounced as the interest rate hikes that started in 2022, they will make it more affordable to borrow money. That setup can lead to more demand for Beazer Homes’ services.
SPX Technologies (SPXC)
SPX Technologies (NYSE:SPXC) has crushed the stock market for several years. Shares are up by 51% year-to-date and have rallied by 325% over the past five years. Although technologies is in the name, it’s not a big tech company that is deeply involved with computers or cybersecurity. Instead, SPX Technologies operates in HVAC, detection & measurement, power transmission & generation, and engineered solutions.
The company operates in 17 countries and generates $1.5 billion in annual revenue. Profit margins have been soaring lately and exceeded 10% in the most recent quarter. Revenue increased by 16.4% YOY to reach $465.2 million while net income jumped by 14.5% YOY to reach $49 million.
SPX Technologies raised its full-year EPS forecast based on the successful quarter. The firm now expects EPS to range from $5.15 to $5.40 instead of the previous range of $4.85 to $5.15 per share. HVAC makes up most of the company’s sales and grew by 20.2% YOY, excluding three acquisitions. If you include the three acquisitions, revenue increased by 22.2% YOY.
Badger Meter (BMI)
Badger Meter (NYSE:BMI) is a leader in water solutions. The company’s advanced technology helps commercial and industrial customers measure water quality and flow. Many water utilities and municipalities also turn to Badger Meter to maximize their water output, reduce waste, and bolster revenue.
The firm’s efforts to help other businesses with their revenue has resulted in impressive gains for investors. Badger Meter stock has gained 32% year-to-date and has almost quadrupled over the past five years. Most of Badger Meter’s locations are in the United States and Europe, but it also has locations in Mexico, Dubai, and Singapore.
Badger Meter has delivered solid financial results for several quarters, including the second quarter of fiscal 2024. The company reached record total sales of $216.7 million which was 23% higher YOY. Diluted EPS increased by 47% YOY to reach $1.12. Badger Meter can comfortably cover its liabilities. The company’s $509.2 million in total current assets exceed $138.2 million in total current liabilities by a wide margin.
On the date of publication, Marc Guberti 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.comPublishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
