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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.

Picking the right small caps isn’t easy, and that’s exactly why StockStory exists - to help you focus on the best opportunities. That said, here are three Russell 2000 stocks to steer clear of and some alternatives to watch instead.

Manitowoc (MTW)

Market Cap: $357.3 million

Contracted by the United States Navy during WWII, Manitowoc (NYSE:MTW) provides cranes and lifting equipment.

Why Should You Sell MTW?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 12.5% declines over the past two years

2. Earnings per share fell by 42.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

3. ROIC of 1.5% reflects management’s challenges in identifying attractive investment opportunities

Manitowoc’s stock price of $10.08 implies a valuation ratio of 13.5x forward P/E. Dive into our free research report to see why there are better opportunities than MTW.

Vishay Precision (VPG)

Market Cap: $325.9 million

Emerging from Vishay Intertechnology in 2010, Vishay Precision (NYSE:VPG) operates as a global provider of precision measurement and sensing technologies.

Why Do We Pass on VPG?

1. Sales tumbled by 9.6% annually over the last two years, showing market trends are working against its favor during this cycle

2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.3 percentage points

3. Incremental sales over the last five years were much less profitable as its earnings per share fell by 16.2% annually while its revenue grew

Vishay Precision is trading at $24.58 per share, or 20.3x forward P/E. To fully understand why you should be careful with VPG, check out our full research report (it’s free).

Xerox (XRX)

Market Cap: $694.3 million

Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ:XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.

Why Do We Think XRX Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 6.7% annually over the last five years

2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens