16 Best Russell 2000 Stocks To Buy According To Hedge Funds
Hamna Asim
16 min read
In this article, we discuss 16 best Russell 2000 stocks to buy. If you want to skip our discussion on the Russell 2000 index and overall stock market performance, head over to 5 Best Russell 2000 Stocks To Buy According To Hedge Funds.
In the final quarter of 2023, small-cap stocks experienced a substantial rally, with the Russell 2000 Index gaining 14.0% by the end of the year. This outperformance was notable both in absolute terms and relative to large-cap indices like the Russell 1000 and Russell Top 50, which gained 12.0% and 10.9% for the quarter, respectively. The Federal Reserve's decision to halt rate hikes contributed to a robust performance in domestic equities. In light of the remarkable fourth quarter, the Russell 2000 was no longer in a bear market by the end of 2023, yet it remained down 14.3% from its peak on November 8, 2021, according to Royce Investments. The Russell 2000 lagged behind its large-cap counterpart for 2023, with gains of 16.9% compared to 26.5%, as well as for the 3-, 5-, and 10-year periods ending on December 31, 2023. Although both small-cap style indexes performed well in the fourth quarter of 2023, the advantage clearly favored small-cap value, with the Russell 2000 Value Index gaining 15.3% compared to 12.7% for the Russell 2000 Growth Index. This occurrence of small-cap value outperforming growth, especially with double-digit gains, is relatively rare, happening 35% of the time since the inception of the Russell 2000 on December 31, 1978.
In December 2023, US small-cap stocks reached historically low relative values compared to large caps, as reported by LSEG Datastream. The small-cap S&P 600, with a forward price-to-earnings ratio of 13.7, traded below its long-term average of 18, contrasting sharply with the current level of 19 for the S&P 500. European small caps also displayed a similar trend, with a forward P/E ratio of 12.2, falling below the 15-year average of 15 and the broader MSCI Europe's current P/E of 12.3. This undervaluation has increased the attractiveness of small caps in a broader market rally driven by expectations of global central banks cutting rates in 2024 amid declining inflation.
Historically, US small caps have outperformed large caps during periods of rising growth and slowing inflation, with the Russell 2000 showing an annualized gain of 25.2%, compared to 17.3% for the S&P 500, according to Morningstar Wealth's analysis of data dating back to the 1970s. Morningstar Wealth is overweight on small caps in its US equity fund, considering the cheap valuations as a source of "margin of safety," as highlighted by Marta Norton, the chief investment officer in the Americas. Additionally, there is an expectation of a turnaround in small-cap earnings. LSEG data forecasts a 30% increase in earnings for Russell 2000 companies in 2024, following an 11.5% decline in 2023. This positive outlook adds to the appeal of small-cap stocks in the current market landscape.
Recently, Sahak Manuelian, the managing director and head of equity trading at Wedbush, joined BNN Bloomberg, expressing that small-caps and long-duration assets have been experiencing significant upward movement. He asserted that this trend is ongoing and predicted further upside for the Russell 2000.
According to elite hedge funds, some of the best Russell 2000 stocks to invest in include Chord Energy Corporation (NASDAQ:CHRD), Super Micro Computer, Inc. (NASDAQ:SMCI), and Cytokinetics, Incorporated (NASDAQ:CYTK).
Our Methodology
For this list, we consulted the iShares Russell 2000 ETF. We considered its top 40 holdings and selected the 16 companies which were most popular among hedge funds. We have assessed the hedge fund sentiment from Insider Monkey’s database of 933 elite hedge funds tracked as of the end of the fourth quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
16 Best Russell 2000 Stocks To Buy According To Hedge Funds
A senior executive looking up at a large boardroom filled with the stocks their company manages.
Best Russell 2000 Stocks To Buy According To Hedge Funds
BellRing Brands, Inc. (NYSE:BRBR) operates in the United States, focusing on providing a range of nutrition products. Their offerings include ready-to-drink protein shakes, other beverages, powders, nutrition bars, and more, primarily marketed under the Premier Protein and Dymatize brands. On February 5, BellRing Brands, Inc. (NYSE:BRBR) reported financial results for the first fiscal quarter of 2024 ended December 31, 2023. The company posted a non-GAAP EPS of $0.43 and a revenue of $430.4 million, outperforming Wall Street estimates by $0.03 and $21.96 million, respectively.
According to Insider Monkey’s fourth quarter database, 31 hedge funds were bullish on BellRing Brands, Inc. (NYSE:BRBR), compared to 32 funds in the prior quarter.
In addition to Chord Energy Corporation (NASDAQ:CHRD), Super Micro Computer, Inc. (NASDAQ:SMCI), and Cytokinetics, Incorporated (NASDAQ:CYTK), BellRing Brands, Inc. (NYSE:BRBR) is one of the best Russell 2000 stocks to invest in.
Qualys, Inc. (NASDAQ:QLYS) provides cloud-based IT, security, and compliance solutions globally. Their offerings encompass services like Cybersecurity Asset Management, Vulnerability Management, and Web Application Scanning, delivered through the Qualys Cloud Apps. Qualys, Inc. (NASDAQ:QLYS) is one of the best Russell 2000 stocks to monitor. On February 7, the company reported a Q4 non-GAAP EPS of $1.40, beating Wall Street estimates by $0.07. The revenue increased 10.5% year-over-year to $144.57 million, in-line with market consensus.
According to Insider Monkey’s fourth quarter database, 31 hedge funds were long Qualys, Inc. (NASDAQ:QLYS), compared to 25 funds in the last quarter. Terry Smith’s Fundsmith LLP is the largest stakeholder of the company, with 623,955 shares worth $122.5 million.
Polen U.S. Small Company Growth Strategy stated the following regarding Qualys, Inc. (NASDAQ:QLYS) in its fourth quarter 2023 investor letter:
“Qualys, Inc. (NASDAQ:QLYS), a cloud-based IT security solutions company focused on vulnerability management software, delivered better-than-expected top and bottom-line growth and raised full-year guidance for 2023—particularly encouraging given the challenging macro environment. We continue to believe Qualys is very well positioned to benefit from the secular trend of growing cybersecurity demand, and that the company is uniquely positioned thanks to its platform approach and disciplined balance of profitability and growth.”
ATI Inc. (NYSE:ATI) is a global manufacturer and seller of specialty materials and components, operating in two segments – High Performance Materials & Components and Advanced Alloys & Solutions. ATI Inc. (NYSE:ATI) ranks 14th on our list of the best Russell 2000 stocks. On February 1, ATI Inc. (NYSE:ATI) reported a Q4 non-GAAP EPS of $0.64 and a revenue of $1.06 billion, exceeding Wall Street estimates by $0.02 and $10 million, respectively.
According to Insider Monkey’s fourth quarter database, 32 hedge funds were long ATI Inc. (NYSE:ATI), compared to 31 funds in the last quarter. Richard Driehaus’ Driehaus Capital is the biggest stakeholder of the company, with 1.5 million shares worth $70.4 million.
Liberty Park Capital made the following comment about ATI Inc. (NYSE:ATI) in its Q1 2023 investor letter:
“We are pleased that Liberty Park Fund, LP has gotten off to a strong start in 2023. January was a particularly strong month for both of our funds, and LPF was able to use the market’s strength to install several new short positions; those positions greatly helped the portfolio in February and March as the market receded.
Nextracker Inc. (NASDAQ:NXT) is an energy solutions company specializing in solar tracker and software solutions for utility-scale and distributed generation solar projects globally. On January 31, Nextracker Inc. (NASDAQ:NXT) announced financial results for the third quarter ended December 31, 2023. The company reported a Q3 non-GAAP EPS of $0.96 and a revenue of $710.43 million, outperforming Wall Street estimates by $0.47 and $92.94 million, respectively. Revenue for the quarter increased 38.4% on a year-over-year basis.
According to Insider Monkey’s fourth quarter database, 33 hedge funds were bullish on Nextracker Inc. (NASDAQ:NXT), compared to 26 funds in the earlier quarter.
e.l.f. Beauty, Inc. (NYSE:ELF) provides cosmetic and skincare products worldwide under brand names including e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare. It is one of the best Russell 2000 stocks to monitor. On February 6, e.l.f. Beauty, Inc. (NYSE:ELF) reported its financial results for the quarter ending December 31, 2023. The non-GAAP EPS of $0.74 and revenue of $270.9 million exceeded Wall Street estimates by $0.18 and $31.99 million, respectively. Revenue for the quarter rose 85% compared to the same period last year.
According to Insider Monkey’s fourth quarter database, 34 hedge funds were long e.l.f. Beauty, Inc. (NYSE:ELF), same as the prior quarter. Ben Jacobs’ Anomaly Capital Management is the largest stakeholder of the company, with 616,912 shares worth $89 million.
Diamond Hill Long-Short Fund made the following comment about E.l.f. Beauty, Inc. (NYSE:ELF) in its Q4 2022 investor letter:
“New positions initiated in Q4 included shorts International Business Machines (IBM), Acushnet Holdings (GOLF) and E.l.f. Beauty, Inc. (NYSE:ELF). Shares of value-oriented beauty brand ELF received a meaningful boost from normalizing beauty usage and spending in a post-COVID environment, which we believe has contributed to its premium multiple relative to competitors in the beauty space. As this temporary lift unwinds, we expect elf’s valuation to similarly return to a level better aligned with its product offerings.”
Comfort Systems USA, Inc. (NYSE:FIX) operates in the mechanical and electrical services industry in the United States. The company offers a range of services including installation, renovation, maintenance, repair, and replacement for heating, ventilation, air conditioning, plumbing, electrical, piping, controls, off-site construction, monitoring, and fire protection systems. Comfort Systems USA, Inc. (NYSE:FIX) ranks 11th on our list of the best Russell 2000 stocks. On February 22, the company declared a quarterly dividend of $0.25 per share, in line with previous. The dividend is payable on March 19, to shareholders on record as of March 8.
According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on Comfort Systems USA, Inc. (NYSE:FIX), up from 24 funds in the prior quarter. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 277,011 shares worth $57 million.
Richie Capital Group made the following comment about Comfort Systems USA, Inc. (NYSE:FIX) in its Q1 2023 investor letter:
“Comfort Systems USA, Inc. (NYSE:FIX) (FIX up 26.9%) – The national provider of HVAC installation, maintenance, and repair services, had an outstanding quarter. Driven by positive tailwinds from the trends in modular construction and American business reshoring, the company finds itself with more business than it can accommodate. Management highlighted that Comfort Systems has an order backlog that will keep them busy well into 2024. Their order book is completely full for 2023 and they are now booking projects for 2024. The reported jump in backlog was primarily due to a large order from a single customer in the modular construction business. The commitment is to support a large customer project where the company is seeking to get ahead of other businesses and the coming reshoring trends. One of the traits we most admire about Comfort Systems is their deep relationships with their customers. Comfort System’s believes that this is only the beginning of the movement towards reshoring and, in the coming years, more businesses will develop new buildings and facilities in the U.S. to overcome recent global supply chain challenges.
Weatherford International plc (NASDAQ:WFRD) is a global energy services company that specializes in providing equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The company operates through three segments – Drilling and Evaluation, Well Construction and Completions, and Production and Intervention. On February 6, Weatherford International plc (NASDAQ:WFRD) reported a Q4 GAAP EPS of $1.90 and a revenue of $1.36 billion, outperforming Wall Street estimates by $0.57 and $20 million, respectively.
According to Insider Monkey’s fourth quarter database, 35 hedge funds were long Weatherford International plc (NASDAQ:WFRD), compared to 34 funds in the earlier quarter. Donald Yacktman’s Yacktman Asset Management is the largest stakeholder of the company, with 1.38 million shares worth $135.4 million.
Yacktman Asset Management made the following comment about Weatherford International plc (NASDAQ:WFRD) in its Q3 2022 investor letter:
“Weatherford International plc (NASDAQ:WFRD) shares rallied due to solid revenue growth and margin expansion. After many years of restructuring, the company’s results are improving significantly, which we think offers continued upside to the shares.”
Abercrombie & Fitch Co. (NYSE:ANF) is a specialty apparel retailer with operations in the United States, Europe, the Middle East, Asia, the Asia-Pacific, and Canada. The company operates through two segments – Hollister and Abercrombie. Abercrombie & Fitch Co. (NYSE:ANF) ranks 9th on our list of the best Russell 2000 stocks. On January 31, the company officially launched a partnership with the McLaren Formula 1 team. The collaboration involves the release of licensed graphics apparel, content creation, and social media collaborations between the two entities.
According to Insider Monkey’s fourth quarter database, 35 hedge funds were long Abercrombie & Fitch Co. (NYSE:ANF), compared to 28 funds in the earlier quarter.
Carillon Chartwell Small Cap Value Fund made the following comment about Abercrombie & Fitch Co. (NYSE:ANF) in its Q3 2023 investor letter:
“Within the Carillon Chartwell Small Cap Growth Fund, information technology and industrials were the strongest-performing sectors, with strong stock selection leading to alpha generation. Abercrombie & Fitch Co. (NYSE:ANF) reported very strong earnings driven by significant margin improvement that resulted from much lower shipping and freight costs compared to last year.”
Permian Resources Corporation (NYSE:PR) is an independent oil and natural gas company that specializes in developing crude oil and liquids-rich natural gas reserves in the United States. On January 30, Permian Resources Corporation (NYSE:PR) announced a series of strategic transactions, including two bolt-on acquisitions, an acreage swap, a non-core asset sale, and additional grassroots acquisitions. The company acquired 11,500 net leasehold acres and 4,000 net royalty acres in Eddy County, New Mexico, for a total of $175 million from undisclosed third-parties. These properties, mainly undeveloped acreage, offer over 100 gross operated, two-mile locations with high net revenue interests (NRIs). Permian Resources Corporation (NYSE:PR) is one of the best Russell 2000 stocks to buy.
According to Insider Monkey’s fourth quarter database, 35 hedge funds were bullish on Permian Resources Corporation (NYSE:PR), same as the prior quarter.
Murphy Oil Corporation (NYSE:MUR) is an oil and gas exploration and production company with operations in the United States, Canada, and internationally. The company explores for and produces crude oil, natural gas, and natural gas liquids. Murphy Oil Corporation (NYSE:MUR) is one of the best Russell 2000 stocks to invest in. On January 25, the company declared a $0.30 per share quarterly dividend, a 9.1% increase from its prior dividend of $0.275. The dividend is payable on March 4, to shareholders on record as of February 20.
According to Insider Monkey’s fourth quarter database, 36 hedge funds were bullish on Murphy Oil Corporation (NYSE:MUR), compared to 31 funds in the prior quarter. Steve Cohen’s Point72 Asset Management is the largest stakeholder of the company, with 1.6 million shares worth $67.8 million.
Atkore Inc. (NYSE:ATKR) is engaged in the manufacturing and sale of electrical, mechanical, safety, and infrastructure products and solutions globally. The product offerings include conduits, cables, installation accessories, metal framing, mechanical pipe, perimeter security, and cable management. On February 1, Atkore Inc. (NYSE:ATKR) announced earnings for its fiscal 2024 first quarter ended December 29, 2023. The company reported a non-GAAP EPS of $4.12 and a revenue of $798.5 million, outperforming Wall Street estimates by $0.51 and $21.45 million, respectively.
According to Insider Monkey’s fourth quarter database, 37 hedge funds were bullish on Atkore Inc. (NYSE:ATKR), compared to 35 funds in the prior quarter. Jeffrey Gates’ Gates Capital Management is the largest stakeholder of the company, with 822,321 shares worth $131.5 million.
In addition to Chord Energy Corporation (NASDAQ:CHRD), Super Micro Computer, Inc. (NASDAQ:SMCI), and Cytokinetics, Incorporated (NASDAQ:CYTK), Atkore Inc. (NYSE:ATKR) is one of the top Russell 2000 stocks, ranking 6th on our list.
HL Global Small Companies Equity Strategy made the following comment about Atkore Inc. (NYSE:ATKR) in its first quarter 2023 investor letter:
“By region, the US posted the biggest outperformance. Atkore Inc. (NYSE:ATKR) reported higher demand for electrical conduit, particularly for non-residential uses such as data centers and chip-fabrication plants.”
