In this article, we discuss the 7 best Russell 2000 stocks to buy according to analysts. Moreover, we also discuss the impact of the Fed’s cut cycle on small-cap stocks.
The investor sentiment remains bullish toward the market, especially since the Fed’s recent decision to cut interest rates by half a percentage point, which is seen as a move to sustain economic health rather than a response to economic distress.
Moreover, the recent inflation report also showed positivity. After the first rate cut since March 2020, the August inflation report showed that the Personal Consumption Expenditures (PCE) price index rose 2.2%, the lowest level since early 2021. Core PCE, which excludes food and energy, also rose 0.1% for the month and recorded a 12-month increase of 2.7%.
While the market is reacting positively to the news, some experts are slightly worried about the market trends.
Bernstein’s Insights on Market Trends
Richard Bernstein, CEO of Richard Bernstein Advisors, joined CNBC ‘The Exchange’ on September 23 to discuss what’s happening in the market. He mentioned that stocks of small companies are not doing as well as riskier investments like cryptocurrencies. He is worried that the Federal Reserve is putting too much money into the economy, and it is not being spent wisely.
However, Bernstein believes that small and mid-sized companies will grow a lot by the end of the year, especially compared to the slower growth of big tech companies, such as the “Magnificent Seven.” Bernstein is also concerned that the Fed is lowering interest rates even though the profits are getting better, which might make the situation worse.
When asked if it’s time to focus on big tech stocks, Bernstein said many investors are doing that because of the current market trends. He thinks smaller companies offer better value and growth in the long run. He criticized risky investments like cryptocurrencies, saying they take money away from important areas like infrastructure, which could harm the economy. He warned that financial bubbles, where prices go too high too fast, can be just as harmful as regular inflation.
The bullish sentiment around small-cap stocks is also shared by Greg Tuorto, a portfolio manager at Goldman Sachs Asset Management, as we discussed his interview with Yahoo Finance in our article, 7 Cheap Small-Cap Stocks To Buy Now. Here is an excerpt from it:
“He [Greg Tuorto] highlighted several supportive factors for small caps, including a stable U.S. economy and opportunities in sectors like technology, healthcare, and consumer industries. Despite recent underperformance, he believes small caps are positioned for a rebound, driven by strong earnings growth rather than multiple expansions.
Tuorto also emphasized the potential for small caps to outperform large caps in 2025, given that their earnings outlook appears more favorable.”
With that, we look at the 7 Best Russell 2000 Stocks to Buy According to Analysts.
7 Best Russell 2000 Stocks to Buy According to Analysts
Our Methodology
For this article, we made a list of the 35 biggest best weekly performers of the small-cap index in the week ending September 27. Next, we narrowed our list of 7 stocks with the highest average analyst price target upside. The stocks are listed in ascending order of their price target upside. We also added the hedge fund sentiment around each stock, which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? 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).
7 Best Russell 2000 Stocks to Buy According to Analysts
7. Innodata Inc. (NASDAQ:INOD)
Average Price Target Upside: 113.70%
Number of Hedge Fund Holders: 6
Innodata Inc. (NASDAQ:INOD) is a global data engineering company that operates in multiple countries, including the United States, the United Kingdom, the Netherlands, and Canada. It operates through three primary segments, Digital Data Solutions, Synodex, and Agility.
Each segment plays an important role in providing comprehensive data solutions tailored to meet the demands of various industries. The Digital Data Solutions segment specializes in AI data preparation, including tasks such as collecting and creating training data, as well as integrating AI models.
Synodex focuses on transforming medical records into actionable digital data and uses both proprietary and client data models. Meanwhile, the Agility segment supports marketing and public relations professionals by offerin tools to effectively target and distribute content, while also monitoring and analyzing a wide array of news and social media channels.
Innodata (NASDAQ:INOD) has a Buy rating from 3 analysts and the average price target of $34.00 implies an upside of 113.70% to the stock’s price, as of September 27.
The company expects to achieve at least 40% organic revenue growth in 2024, significantly higher than the 20% year-over-year growth predicted in the previous quarter. It is driven by a strong pipeline of new generative AI services, especially for major tech companies.
At the beginning of 2024, Innodata (NASDAQ:INOD) secured master service agreements with five of the “Magnificent Seven” technology companies. It positions the company to generate revenue from three of these major players this year while making progress with the other two.
On September 17, Craig-Hallum initiated coverage of the stock with a Buy rating and a $23 price target. The firm believes that it is an undervalued stock in the generative AI space.
The firm recognizes the company as a “picks and shovels” opportunity, meaning it provides essential tools and services that will thrive alongside the growth of generative AI technologies.
In Q2, 6 hedge funds tracked by Insider Monkey had investments in Innodata (NASDAQ:INOD), with positions worth $12.977 million. Renaissance Technologies is the top investor in the company as of Q2 and has a stake worth $7.1 million.
6. Piedmont Lithium Inc. (NASDAQ:PLL)
Average Price Target Upside: 119.06%
Number of Hedge Fund Holders: 9
One of the best Russell 2000 stocks, Piedmont Lithium Inc. (NASDAQ:PLL) is a development stage company dedicated to the exploration and development of lithium resources in the United States and internationally.
The company’s flagship initiative, the Carolina Lithium Project, includes approximately 3,706 acres in North Carolina’s Carolina Tin-Spodumene Belt. The area is essential for its high-quality spodumene ore, which serves as a primary source of lithium, an important component for EV batteries.
In addition to the Carolina Lithium Project, Piedmont Lithium (NASDAQ:PLL) owns properties in Bessemer City and Kings Mountain, which improve its growth strategy in the region. With a keen focus on the surging demand for EVs, the company aims to produce lithium hydroxide, an important ingredient for lithium-ion batteries that power these vehicles.
Beyond its operations in North Carolina, the company is also advancing significant lithium projects in Quebec, especially the North American Lithium project. Recognized as the largest spodumene mine in North America, this project is significant for addressing the increasing demand for battery materials.
The company aims to produce approximately 60,000 metric tons of lithium hydroxide annually from these operations, which will play a crucial role in boosting the U.S. lithium supply and supporting the growing battery market.
Moreover, as per the coverage of 10 analysts, the stock has a consensus Buy rating. As of September 27, the average price target of $20.00 represents a 119.06% upside from the current levels.
On September 16, Piedmont Lithium (NASDAQ:PLL) announced a significant development regarding the Ewoyaa Lithium Project in Ghana, where the Environmental Protection Agency granted an environmental permit.
The project, developed in partnership with Atlantic Lithium Limited, is set to produce 365,000 metric tons of spodumene concentrate annually. In a move to improve its portfolio, the company exercised an option to acquire a 22.5% stake in the Ewoyaa Project in 2023, with plans to ultimately secure a 50% equity interest in Atlantic Lithium’s operations in Ghana, subject to governmental approvals.
