Small-cap stocks are ready for a 2024 resurgence as investors’ risk appetite grows but mega-caps remain somewhat overvalued. Small-caps have had a tough year thus far, though, as evidenced by the Russell 2000 returning a slim 7% since January. But that’s about to change. Intelligent investors are poised to snag some small-caps within the Russell 2000 to prepare for the new year.
Remember that, over a long enough period, small-caps like those in the Russell 2000 outperform larger companies. Though that’s on an index basis, i.e., the Russell 2000 beats out the S&P 500 over a long enough horizon, you can still pick specific small-caps to beat the big names.
Livent Corp (LTHM)
Livent Corp (NYSE:LTHM), a Russell 2000 mining stock, is emerging as a promising but undervalued stock.
Its upside is mostly due to the growing focus on sustainability and the increasing popularity of electric vehicles (EVs). Livent is a key supplier of lithium, an essential component in EV battery production, as well as other products aligned with the low-carbon transition.
The company’s stock price closely tracks the market price of lithium, meaning it had a tough time in 2023. Recent market trends, including an oversupply in certain sectors, have led to a near 30% drop in Livent’s share price since the beginning of the year. Despite this downturn, forecasts from global lithium producers suggest a reversal in this trend soon. A report predicts that by 2030, the demand for lithium will exceed supply by over 500,000 tons, largely driven by the increasing adoption of EVs.
Morningstar ballparks a net lithium spot price stabilization in 2024 before climbing exponentially. Analysts project that the price per ton of lithium could increase by 30% due to a shift back to a market characterized by undersupply and high demand. Based on these factors, Livent’s stock is trading at nearly 65% below what Morningstar considers its fair value, suggesting significant potential for growth. This positions Livent as a stock with considerable upside potential in the Russell 2000 index.
Fabrinet (FN)
Though not frequently in the spotlight, Fabrinet (NYSE:FN) is emerging as a key player among Russell 2000 stocks. It’s a major upstream supplier for major firms including Nvidia (NASDAQ:NVDA), offering essential components for today’s tech. Fabrinet’s range of products is broad, but it’s their fiber optic cable segment that bears mentioning.
The company produces cutting-edge, ultra-high-speed fiber optic cables, enabling rapid communication between computers and hardware systems at speeds exceeding 800 GB per second. These cables, crucial for AI-focused firms like Nvidia, are instrumental in facilitating swift, large-scale data transfers. This segment of Fabrinet’s business currently generates about $500 million in revenue. And, projections indicate a potential doubling of operational income in the coming years.
Despite a surge in share prices in August, Fabrinet’s stock has stabilized, making it one of the best Russell 2000 stocks to capture 2024’s AI upside.
Parsons Corp (PSN)
Parsons Corp (NYSE:PSN) is another overlooked Russell 2000 stock, though this company is entrenched in the defense tech industry. With a diverse portfolio, it spans intelligence and security domains.
Parsons is known for its expertise in ballistic missile site construction, rocketry equipment, and nuclear facility management. Also, the company has a strong presence in infrastructure development, notably in bridge construction. That makes Parsons one of the best Russell 2000 stocks to capture national infrastructure revitalization initiatives ahead of the next election cycle.
The extensive and complex nature of Parsons’ projects requires sophisticated technical data management and supervision, areas where AI shines. Parsons is leading the way in implementing AI for internal data solutions.
However, its advancements in AI-enabled drone technologies are particularly interesting considering today’s state of global affairs. A major area of focus for Parsons is the development of systems for detecting and classifying unmanned drones. This technology is increasingly vital as commercial drones become more prevalent in global conflict zones. The trend is evident from recent conflict on the open seas.
Beyond defense applications, Parsons pioneers AI-driven drone solutions for infrastructure inspection. These innovative tools are designed to critique bridges, roadways, water treatment facilities, and other infrastructure projects. They stand out in hazardous or challenging environments that require meticulous safety evaluation. Parsons effectively integrates AI into critical areas where safety and accessibility are paramount. That makes this defense tech stock a unique Russell 2000 AI play.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
