The Russell 2000 Index is a widely followed benchmark that tracks the performance of small-cap companies in the United States. This index includes the smallest 2,000 companies, ranging from a few hundred million to a few billion dollars in market capitalization. These companies are often seen as more growth-oriented and can be more volatile compared to their large-cap counterparts. Investors and analysts use the performance of the Russell 2000 Index to gauge the health and trends of the small-cap segment of the U.S. equity market, which can provide insights into broader economic conditions and investor sentiment toward smaller, potentially higher-growth companies.
The Russell 2000 Index has demonstrated significant strength over the past years. As of January 17, the index stands at 2,278.01, with a 19.07% increase over the past year and a remarkable 34.03% increase over the past five years. This robust growth reflects the resilience and potential of small-cap companies in the United States and highlights the strong investor sentiment and economic conditions that have favored small-cap stocks.
Read Also: 12 Cheapest Stocks with Biggest Upside Potential and Top 10 Undervalued Tech Stocks to Buy According to Hedge Funds.
In an interview with CNBC on January 17, Chris Retzler, Portfolio Manager of Small Cap Growth Fund at Needham Asset Management, discussed the current state and future prospects of small-cap stocks in the US market. Retzler acknowledged that while small-cap stocks, as represented by the Russell 2000 Index, have struggled compared to larger indices such as the S&P 500 and Nasdaq, there are signs of improvement, as the Russell 2000 has managed to break out of correction territory for four consecutive days, which is a positive signal.
Retzler emphasized that small-cap companies are looking for certainty in the U.S. economy, which is poised to have at some point in a few weeks or months. Once this certainty is established, Retzler expects to see an acceleration in market activity, driven by increased confidence and broader market participation. He highlighted the significant innovation occurring in sectors such as electric vehicles, semiconductors, and new materials, which could provide opportunities for small-cap companies to thrive. Retzler mentioned that infrastructure is also another key area of focus. He cited data centers and power supply as critical areas where infrastructure gaps are evident. The push for bringing manufacturing back to the U.S. is also creating a demand for more robust infrastructure to support these industries.
The discussion also touched on the challenges and opportunities presented by higher interest rates and the Federal Reserve’s pause in rate hikes. Retzler noted that while interest rates are higher, the yield curve is becoming healthier, with favorable conditions for lending, particularly through regional banks. Retzler acknowledged that lower interest rates would definitely benefit small-cap companies, however, the long-term bond rates are still relatively high, and there is a need to address the deficit spending and demand in the bond market before bringing interest rates down further.
Retzler emphasized the importance of a business-friendly regulatory environment, which includes tax incentives and deregulation. He noted that small-cap companies have often been overburdened by regulatory requirements, and any move toward deregulation could significantly benefit these firms. Tax incentives, in particular, can play a crucial role in encouraging companies to bring their manufacturing operations back to the U.S., which can lead to job creation and economic growth. Additionally, tax incentives can help reduce the cost of doing business, making it easier for small-cap companies to compete and expand. He also suggested that if the regulatory environment becomes more business-friendly, including potential deregulation, it could lead to more mergers and acquisitions (M&A) and a healthier IPO market.
The current economic conditions are becoming favorable for small-cap companies, with improvements in the economy, declining interest rates, and the potential for deregulation. These factors should benefit small-cap stocks and support their future growth. With that in context, let’s take a look at the 10 best Russell 2000 stocks to invest in according to analysts.
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Our Methodology
To compile our list of the 10 best Russell 2000 stocks to invest in according to analysts, we used Finviz and Yahoo stock screeners to find the 40 largest Russell 2000 companies. We then sourced the analysts’ average price targets and picked the 10 stocks that had the highest upside potential. We also included their stock price as of January 16 and their hedge fund sentiment, which was taken from Insider Monkey’s Hedge Fund database of 900 elite hedge funds as of Q3 of 2024. The list is sorted in ascending order of analysts’ average upside potential as of January 16.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Russell 2000 Stocks to Invest in According to Analysts
10. Fluor Corporation (NYSE:FLR)
Upside Potential: 17.88%
Stock Price as of January 16: $48.99
Number of Hedge Fund Investors: 29
Fluor Corporation (NYSE:FLR) is a global company that provides engineering, procurement, construction, maintenance, and project management services. The company offers a diverse portfolio of services spanning multiple industries, including oil and gas, mining and metals, urban solutions, advanced technologies, and infrastructure.
Fluor Corporation (NYSE:FLR) is actively diversifying its portfolio to capitalize on emerging market trends and reduce dependency on traditional sectors. The company has made significant strides in expanding its footprint in non-traditional oil and gas projects. This diversification is driven by a strategic focus on energy transition, low-carbon power projects, and the chemical industry, particularly in the Middle East. Fluor Corporation (NYSE:FLR) is involved in large liquids-to-chemicals projects and is positioning itself to benefit from the growing demand for battery chemicals and chemical recycling.
Fluor Corporation (NYSE:FLR) is pursuing strategic partnerships and new business opportunities to drive growth. The company has been selected for several high-profile projects, including the Minera Escondida Concentrator Program in Chile, the Hanford Integrated Tank Disposition Contract in Washington State, and the engineering study for a centrifuge pilot plant as part of the National Nuclear Security Administration’s Domestic Uranium Enrichment Centrifuge Experiment Program. Furthermore, Fluor Corporation (NYSE:FLR) is making significant progress on the RoPower small modular nuclear reactor project in Romania, which is expected to support the country’s transition to carbon-free power generation.
9. Old National Bancorp (NASDAQ:ONB)
Upside Potential: 18.38%
Stock Price as of January 16: $22.53
Number of Hedge Fund Investors: 20
Old National Bancorp (NASDAQ:ONB) is a regional banking organization serving customers across the Midwest United States. The bank offers a wide range of financial products, including personal and business banking, loans, mortgages, and wealth management services. Old National Bancorp’s (NASDAQ:ONB) clients include individuals, small businesses, and corporations.
Old National Bancorp (NASDAQ:ONB) is making strategic investments in fee-income businesses, particularly in treasury management and wealth management. These areas offer longer-term returns and are seen as key drivers of future growth. The company is actively seeking to attract top talent in these sectors and believes that high-caliber professionals can significantly contribute to the expansion of these businesses. Additionally, Old National Bancorp (NASDAQ:ONB) is leveraging its strong network of existing customer relationships to cross-sell fee-based services. The focus on fee income is part of a broader strategy to reduce reliance on net interest income and create a more diversified revenue model.
Old National Bancorp (NASDAQ:ONB) is also driving organic deposit growth to fund its asset generation. The company is focusing on a proactive deposit strategy, which includes competitive pricing and a focus on client acquisition. Furthermore, Old National Bancorp (NASDAQ:ONB) is maintaining a proactive approach to credit management, with a more conservative risk rating approach to avoid credit losses.
