Don’t count out small and mid-sized stocks. Plenty of them are strong performers that offer incredible returns to shareholders. Generally defined as any security that has a market capitalization between $250 million and $10 billion, the majority of these small and mid-sized stocks trade on the Russell 2000 index. The index was started in 1984 and is comprised of the 2,000 smallest U.S. stocks. There’s a lot for investors to consider when looking at the best Russell 2000 stocks to buy in April.
Many analysts are growing increasingly bullish on small and mid-cap stocks. Tom Lee of market research firm Fundstrat says small-cap stocks are on the cusp of a turnaround and could rise as much as 50% this year, topping the 3,000 level for the first time. Stocks of companies with small market capitalizations are currently valued at 11 times earnings, which is much cheaper than the S&P 500’s average multiple of 21 times earnings. Lee notes that the valuation difference between small and large-cap stocks is similar today to 1999, when small-cap stocks began a 12-year stretch of outperformance.
Here are the three best Russell 2000 stocks to buy in April 2024.
Abercrombie & Fitch (ANF)
With a market capitalization of only $6 billion, Abercrombie & Fitch (NYSE:ANF) has been making waves lately, and is a focus of investors who are looking for the best Russell 2000 stocks to buy in April 2024. While the company’s market weighting might be small, its shareholder returns have been huge. Year-to-date (YTD), ANF stock has been one of the best performers in the Russell 2000, up 33%. Over the last 12 months, the company’s share price has risen nearly 360%, trouncing the returns of just about every other competing stock, regardless of size.
Key to Abercrombie & Fitch’s success has been a turnaround in the company’s earnings. Accelerating sales and profits have ANF stock riding high. Most recently, the clothing retailer announced earnings per share (EPS) of $2.97 versus $2.83 that was the consensus expectation of analysts. Revenue in the fourth quarter of 2023 totaled $1.45 billion compared to $1.43 billion that was estimated. Sales rose 21% year-over-year (YOY) in Q4 2023 due to the year-end holidays and higher prices.
In terms of guidance, the retailer expects sales to rise by a low double-digit percentage this year. That beats Wall Street estimates of 7.2% sales growth. Management says it remains focused on expanding the company’s global customer base and getting closer to its long-term goal of $5 billion in annual sales.
Sweetgreen (SG)
Sweetgreen (NYSE:SG) is a California-based restaurant chain that specializes in salads. In business since 2007, the company had the misfortune of going public in November 2021, just as the pandemic-fueled stock market rally peaked. SG stock then endured a prolonged bear market that lasted a year. As a result, Sweetgreen’s stock today is trading 52% lower than where it finished its first day of trading. That said, the stock has been staging a strong comeback and is up 238% over the last 12 months, including a 129% gain this year.
With a market capitalization of only $2.87 billion, Sweetgreen is one of the top performers so far this year in the Russell 2000 index. The turnaround has come from rapid growth at the company. Sweetgreen continues to open new restaurant locations at a brisk clip and now counts more than 220 stores in 18 states and Washington, D.C. Additionally, the company’s sales have increased by double digits every year since 2021, and Sweetgreen expects to turn a profit later this year.
Analysts at Oppenheimer recently doubled their price target on SG stock to $34, implying 34% upside from current levels.
e.l.f. Beauty (ELF)
E.l.f. Beauty (NYSE:ELF) is another top performing stock in the Russell 2000. Over the last 12 months, ELF stock has doubled (up 98%). Through five years, the company’s share price has gained an astounding 1,280%, beating the returns seen in most mega-cap technology stocks. Yet e.l.f. Beauty’s market capitalization stands at just under $9 billion, making it a leading security on the Russell 2000 exchange. Founded in 2004, the company sells vegan makeup, bath and skin-care items.
The strong performance of ELF stock has been due to stellar financial reports, with analysts labeling the company an earnings triple play, meaning it regularly beats on EPS estimates, consensus revenue forecasts and raising its forward guidance. The company is also extremely smart about its marketing, which mostly focuses on reaching teenage girls through social media platforms such as TikTok and Twitch. The approach has proven highly successful and powered ELF stock to new heights.
On the date of publication, Joel Baglole did not hold (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.
