3 Russell 2000 Stocks We Steer Clear Of

Small-cap stocks in the Russell 2000 (^RUT) can be a goldmine for investors looking beyond the usual large-cap names. But with less stability and fewer resources than their bigger counterparts, these companies face steeper challenges in scaling their businesses.

The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here are three Russell 2000 stocks that don’t make the cut and some better choices instead.

QuidelOrtho (QDEL)

Market Cap: $960.8 million

Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ:QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.

Why Are We Out on QDEL?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Free cash flow margin shrank by 23 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Waning returns on capital imply its previous profit engines are losing steam

At $13.66 per share, QuidelOrtho trades at 6.6x forward P/E. Read our free research report to see why you should think twice about including QDEL in your portfolio.

AMN Healthcare Services (AMN)

Market Cap: $1.19 billion

With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE:AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.

Why Do We Think AMN Will Underperform?

1. Declining travelers on assignment over the past two years indicate demand is soft and that the company may need to revise its strategy
2. Earnings per share have contracted by 7.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

AMN Healthcare Services is trading at $30.98 per share, or 36.8x forward P/E. If you’re considering AMN for your portfolio, see our FREE research report to learn more.

Nabors Industries (NBR)

Market Cap: $1.51 billion

Operating one of the largest land-based drilling rig fleets in the world with over 285 rigs across more than 15 countries, Nabors Industries (NYSE:NBR) operates drilling rigs and provides related services to help oil and gas companies drill wells on land and offshore platforms.

Why Are We Wary of NBR?

1. High extraction costs and unfavorable asset economics are reflected in its low gross margin of 39%
2. Poor free cash flow margin of 2.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Nabors Industries’s stock price of $87.50 implies a valuation ratio of 3x forward EV-to-EBITDA. To fully understand why you should be careful with NBR, check out our full research report (it’s free).

Stocks We Like More

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