The Russell 2000 (^RUT) is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.
Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. Keeping that in mind, here are three Russell 2000 stocks to avoid and better alternatives to consider.
Power Integrations (POWI)
Market Cap: $2.61 billion
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ: POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Are We Out on POWI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.9% annually over the last five years
- Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 6.1% annually, worse than its revenue
At $48.23 per share, Power Integrations trades at 36x forward P/E. To fully understand why you should be careful with POWI, check out our full research report (it’s free).
Monarch (MCRI)
Market Cap: $1.71 billion
Established in 1993, Monarch (NASDAQ: MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
Why Do We Pass on MCRI?
- Lackluster 4.3% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- Rising returns on capital show management is making relatively better investments
Monarch’s stock price of $94.51 implies a valuation ratio of 16.5x forward P/E. Read our free research report to see why you should think twice about including MCRI in your portfolio.
Alight (ALIT)
Market Cap: $402.4 million
Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE: ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.
Why Should You Sell ALIT?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.7% annually over the last five years
- Earnings per share decreased by more than its revenue over the last two years, partly because it diluted shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Alight is trading at $0.76 per share, or 2.5x forward P/E. If you’re considering ALIT for your portfolio, see our FREE research report to learn more.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
