Russell 2000 stocks are some of the smallest companies by market capitalization in the market. Historically, small-cap and mid-cap stocks come with high beta values. This means that the price movement tends to be more volatile than the broader market. True to form, many of these stocks have lagged behind the broader market in 2023.
But there have been some exceptions. And in a year when small-cap stocks have underperformed, that should make you at least a little curious as to why that is.
Admittedly, the bar is relatively low for picking Russell 2000 winners. As of December 8, 2023, the index is up just 2.75% for the year. Yet, the reason why it’s an index is because some of the component stocks are underperforming that average. It’s a good idea to stay away from those stocks.
On the other hand, several Russell 2000 stocks are outperforming the index. And if history is any guide, small-cap and midcap stocks tend to lead market rallies. This means these stocks have room to move higher. If you have room in your portfolio for some risk-on assets, you can consider adding one or more to your portfolio in anticipation of a 2024 market rally.
Russell 2000 Stocks: Super Micro Computer (SMCI)
Artificial intelligence (AI) has been one of the biggest market movers in 2023; the Russell 2000 is no exception. Super Micro Computer (NASDAQ:SMCI) is one of the top-performing Russell 2000 stocks, with a 221% gain in 2023.
The company is the global leader in high-performance and high-efficiency servers. That’s exactly what AI applications require. That gives the company a long runway for growth as the arms race in AI continues to heat up.
It’s reasonable for investors to expect a pullback after SMCI stock has climbed over 200% this year. That may be happening right now. The stock is down 6% in the last three months and up just over 1% in the last month, which is far below the broader market rally.
The company has missed earnings in two of its last four earnings reports. However, analysts project 10% earnings growth over the next 12 months, and analysts have a price target of over $375, which is a gain of more than 40%.
Celsius (CELH)
Despite being down 14% in the last month and 24% in the last three months, Celsius (NASDAQ:CELH) is still up over 46% in 2023. The company is revolutionizing the beverage industry with its health energy drinks containing natural ingredients like green tea extract and ginger root. In fact, the company’s flagship products are now the top-selling energy drink on Amazon (NASDAQ:AMZN).
Investors are getting excited about the company’s distribution agreement with PepsiCo (NASDAQ:PEP). This will allow the company to get international reach for its products. Pepsi will also invest in Celsius, which will likely pay dividends for the company in other ways that are not yet reflected in CELH stock.
Celsius is delivering monster revenue and earnings growth, and analysts believe the company is not yet done. If the company delivers on projections for over 28% earnings growth, the consensus estimate for 24% stock price growth may be too low.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) has been one of the restaurant stocks benefiting from the effects of food inflation. The price of eating at home is still less expensive than dining out regularly, but maybe not as much as before. And with consumers still showing an appetite for travel, there is still a tailwind for TXRH stock.
The stock has been a consistent performer, up 25% for the year, 13% in the last three months, and 10% in the month ending December 8, 2023. Analysts ratings suggest the stock may be topping out, but with projected earnings growth of 17%, those estimates may be revised in subsequent quarters.
And while you wait, Texas Roadhouse does pay a relatively tasty dividend. The yield of 1.93% is not that enticing. But an annual payout of $2.20 per share and an average three-year growth rate of 15% may be enough to keep investors holding the stock for a possible economic turnaround in 2024.
Wingstop (WING)
Wingstop (NASDAQ:WING) is another restaurant stock that stands out in a year of difficult comparisons. WING stock is up 78% for the year, making it one of the top-performing Russell 2000 stocks.
The company last reported earnings on November 1, 2023, and beat on both the top and bottom lines. That’s not surprising because the third and fourth quarters are the strongest for the company due largely to the link between the company and football.
However, those results were even more impressive when viewed on a year-over-year (YOY) basis. Revenue, earnings, and same-store sales growth were all higher than the prior year. And with the company expected to show strong international growth in 2024, the long-term outlook for WING stock looks strong.
That being said, investors shouldn’t be surprised to see the stock pull back slightly. However, that would likely be a good opportunity for investors to initiate or add to their position in the stock.
Avis Budget Group (CAR)
Avis Budget Group (NASDAQ:CAR) may confirm your theory if you believe that the revenge travel boom may be dying. CAR stock is down 4% in the last three months. However, the stock is up over 16% in 2023, and it may be able to move higher.
The company’s revenue and earnings are down year-over-year. That’s not surprising. The company is facing difficult comparisons from late 2021 and 2022. However, the drop-off isn’t as steep as you might expect and suggests that there may still be upside for the rental car space.
And where would that growth come from? With prices for new and used cars remaining historically high, consumers will still be likely to look at rentals as a cost-effective alternative when traveling. Even if you travel a few times a year, the rental expense will be far less than a monthly car payment.
Granted, this assumes that consumers will continue to travel, but the latest jobs report still shows an increase in travel and hospitality-related jobs. That’s not by accident. CAR stock has a consensus price target of $234, a 41% gain from the current price. And the stock trades at just 4.7x forward earnings.
Crocs (CROX)
Despite what is becoming a cult-like following, Crocs (NASDAQ:CROX) has not been immune to a weakening consumer. That doesn’t mean the company isn’t continuing to grow. That rate of growth is just slowing down a little bit.
In fact, CROX stock is currently down 3.98% for the year, which is underperforming the Russell 2000 index. However, the stock is up more than 25% in the month ending December 8, 2023, and with the holiday season in full swing, the stock looks like a good buy at around 8x forward earnings.
The company also recently partnered with McDonald’s (NYSE:MCD). The collaboration with McDonald’s allows consumers to buy shoes, stocks, or a five-pack of Jibbitz charms featuring McDonald’s colors or characters.
Thirteen analysts have rated CROX stock in the last three months. And nine analysts gave the stock either a Strong Buy or Buy rating.
Academy Sports and Outdoors (ASO)
Academy Sports and Outdoors (NYSE:ASO) stock is up 5.73% for the year. However, it’s only pushed ahead of the index with a surge of over 17% in the 30 days ending December 7, 2023. This comes despite the company’s miss on both revenue and earnings for the third quarter.
In a weak retail market, sporting goods and outdoor equipment hold up better than other categories. That doesn’t mean the company isn’t facing the effect of a weakening consumer. But the company did offer full-year earnings guidance from $7.05 to $7.20 per share. The upper end of that forecast is the current average from analysts heading into earnings.
On the other hand, the company has a strong balance sheet with $275 million in net cash and no outstanding borrowings from its $1 billion credit facility. ASO stock also appears to be attractively valued at around 8x forward earnings.
Since earnings, Wedbush reiterated its Outperform rating on ASO stock with a price target of $60. However, the consensus average is $65.61, nearly 10% higher than the current price. And with that price target, 16 out of 18 analysts give the stock either a Strong Buy or Buy rating.
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.
