For most of the year, the Russell 2000 has lagged far behind its peers, the S&P500 and the Nasdaq. However, the small-to-mid cap index appears to be closing the gap. After a string of positive economic news indicating U.S. inflation in on its way downward, equities have sustained a rally. In mid-November, it looked like it was time to find Russell 2000 stocks to sell. The index was only returning 3.5% year-to-date (YTD), but now it has appreciated more than 12% for the year. Furthermore, U.S. Federal Reserve officials revealing there will be a series of rate cuts next year, could most likely bring the Russell to new heights.
Nevertheless, there are certainly still some stocks investors should avoid because, rate cuts or not, their prospects are not bright. Below are three Russell 2000 stocks to sell that are about to get absolutely crushed.
Herbalife (HLF)
Founded in 1980, Herbalife (NYSE:HLF) is a global nutrition company providing health and wellness products, including protein bars and shakes, to some 95 markets worldwide. Herbalife primarily sells its products through two sales channels, direct selling and distributors. While many would perceive the success of the former as highly dependent on marketing spend and the brand’s image, the company contends that through the direct selling sales channel, customers can get proper support, coaching, and education.
Despite selling healthy products to a growing base of customers, Herbalife struggled in 2022 and those struggles continued into 2023. In particular, Herbalife saw its revenue decline by more than 10% year-over-year (YOY) in 2022. Moreover, revenue in Herbalife’s first, second and third fiscal quarter reports declined on a YOY basis. As inflation remains elevated and the economy begins to slow down, it’s likely Herbalife continues to feel consumer pullback in the next couple of quarters.
908 Devices (MASS)
908 Devices (NASDAQ:MASS) creates devices to investigate unknown and invisible materials, such as gases, and provide quick, actionable answers for researchers. At the end of 2022, 908 Devices had sold more than 2,300 handheld and desktop devices to over 550 customers in over 45 different countries, underscoring the product international marketability
Unfortunately, like many companies, 908 Devices has struggled with selling more units of its main products in 2023. In their third quarter earnings print, revenue declined 9% YOY, driven by a decline in recurring revenue from desktop and handheld devices. The number of new devices installed also grew tepidly.
Additionally, the company decided to slightly scale back its revenue guidance range for 2023. These signals show the demand environment for 908 Devices has not returned to normalcy, and this could ultimately place additional selling pressure on the company’s shares in the near-term.
BridgeBio Pharma (BBIO)
BridgeBio Pharma (NASDAQ:BBIO) develops drugs for a number of genetic diseases. In mid-July, the company released positive phase 3 results from its study of acoramidis in transthyretin amyloid cardiomyopathy (ATTR-CM), which happens to be a growing cause of heart failure. From there, the company’s stock price nearly doubled, and has followed the general market volatility ever since. From a YTD perspective, shares have skyrocketed 362%.
My main contention is, while BridgeBio is developing life-saving drugs, it has yet to commercialize most of its projects. The company has only generated a few million dollars in annual revenue, yet the company has a $6.1 billion market cap. This kind of valuation is most likely unsustainable, and the stock is likely to get crushed as many investors cash out on their already amazing return.
On the date of publication, Tyrik Torres 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.
