On July 16, CNBC reported, “Small-cap stocks are on a tear right now.” The financial news channel’s website noted that, during the preceding week, the category became the market leader, at least temporarily. Indeed, the Russell 2000 index, made up of small-cap names, hit its highest level since January 2022 on July 16. With most on the Street betting that the Federal Reserve will start an interest rate-cutting cycle in September, many large investors are anxious to get more exposure to small-cap stocks. That’s because those names, due to the fact that many lose money and have high debt loads, are seen as among the biggest beneficiaries of lower rates.
Also importantly, Joshua Brown, the CEO of Ritholtz Wealth Management and a CNBC commentator, recently said on the channel that the rally of small-cap stocks could last a month. But since the rate-cut cycle will likely last many months and a high percentage of small-cap names have been beaten down tremendously, I think the surge could easily last until the end of this year. With that said, here are three Russell 2000 stocks to buy now.
Lithia Motors (LAD)
Auto retailer Lithia Motors (NYSE:LAD) should get a big boost from the Fed’s upcoming interest rate cuts. That’s because most consumers borrow money in order to purchase vehicles, so lower rates make it much more affordable for them to buy automobiles.
Lithia’s business is already growing rapidly, as its top line surged 23% last quarter, versus the same period a year earlier, to an all-time record of $8.6 billion. Further, the retailer’s new vehicle same-store units handed over rose by an impressive 3.6% year-over-year.
Lithia’s operating income dropped significantly, coming in at $348.1 million from $373.2 million in Q1 of 2023. However, the interest rate cuts should enable the company to meaningfully lift its prices, significantly raising its profitability.
The shares have a very low forward price-to-earnings ratio of 10, and the company announced last month that it would increase its share buyback total by $350 million to $660 million.
Celsius Holdings (CELH)
Celsius Holdings (NASDAQ:CELH) stock has tumbled in recent weeks because the Street is worried about the energy-drink maker’s growth slowing. However, the firm’s growth appears to be slowing, primarily because its distribution partner, PepsiCo (NYSE:PEP), accumulated too much inventory of Celsius’ beverages and has been working through that inventory in recent weeks. That should be a temporary issue since Celsius’ growth is likely to reaccelerate once Pepsi has worked through its excess inventory.
Moreover, despite this issue, Celsius’ top line still jumped by an impressive 37% in Q1 versus the same period a year earlier. Further, due to Celsius’ low calorie count and the impressive amount of vitamins it provides compared to other energy drinks, I’m confident it will deliver strong financial results in the medium and long term.
Also upbeat on CELH stock is investment bank William Blair. According to the bank, the beverage maker offered “compelling perspectives and proof points” on the long-term outlook of its business in May.
Given these points, I view the name as one of the best Russell 2000 stocks to buy now.
Deckers Outdoor (DECK)
Deckers Outdoor (NYSE:DECK) has been getting big lifts from the surging popularity of its HOKA and UGG footwear.
In its fiscal Q4 that ended in March, the company’s top line jumped 21% versus the same period a year earlier to $960 million, while its income from operations soared to $144.26 million from $105.92 million in the same quarter a year earlier. Very impressively, the net sales of its HOKA footwear advanced 34% year-over-year to $533 million.
In the wake of Decker’s financial results, investment bank Truist (NYSE:TFC) upgraded the stock to Buy from Hold. Truist believes the company is “firing on all cylinders” and has plenty of growth opportunities going forward. Specifically, it expects Deckers to gain more market share than the Street expects and predicts that UGG will become more popular overseas. Truist believes the brand will gain momentum as awareness among consumers about its new sneakers and sandals grows.
On the date of publication, Larry Ramer held a long position in CELH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.