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 is one Russell 2000 stock that could be the next big thing and two that may face some trouble.

Two Stocks to Sell:

Albany (AIN)

Market Cap: $1.84 billion

Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.

Why Should You Sell AIN?

1. 3.7% annual revenue growth over the last five years was slower than its industrials peers
2. Earnings per share fell by 7.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.5 percentage points

Albany is trading at $62.27 per share, or 14.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including AIN in your portfolio.

Mercury General (MCY)

Market Cap: $4.27 billion

Founded in 1961 and maintaining a network of over 6,300 independent agents across the country, Mercury General (NYSE: MCY) is an insurance company that primarily sells automobile insurance policies through independent agents in 11 states, with a strong focus on California.

Why Is MCY Not Exciting?

1. Operational productivity has decreased over the last four years as its combined ratio worsened by 7.5 percentage points
2. Capital trends were unexciting over the last five years as its 1.6% annual book value per share growth was below the typical insurance firm
3. Underwhelming 7% return on equity reflects management’s difficulties in finding profitable growth opportunities

Mercury General’s stock price of $77.15 implies a valuation ratio of 2.1x forward P/B. If you’re considering MCY for your portfolio, see our FREE research report to learn more.

One Stock to Buy:

Live Oak Bancshares (LOB)

Market Cap: $1.72 billion

Founded during the 2008 financial crisis with a vision to reimagine small business banking through technology, Live Oak Bancshares (NYSE: LOB) is a bank holding company that specializes in providing online banking services and SBA-guaranteed loans to small businesses across targeted industries nationwide.

Why Is LOB a Top Pick?

1. Market share has increased this cycle as its 20.9% annual net interest income growth over the last five years was exceptional
2. Incremental sales over the last five years have been highly profitable as its earnings per share increased by 51.2% annually, topping its revenue gains
3. Balance sheet strength has increased this cycle as its 11.4% annual tangible book value per share growth over the last five years was exceptional

At $37 per share, Live Oak Bancshares trades at 1.5x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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