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.
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 are two Russell 2000 stocks that could be the next breakout winners and one best left off your watchlist.
One Stock to Sell:
Kontoor Brands (KTB)
Market Cap: $3.70 billion
Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE: KTB) is a clothing company known for its high-quality denim products.
Why Should You Sell KTB?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 13% for the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Kontoor Brands is trading at $66.52 per share, or 11.7x forward P/E. Dive into our free research report to see why there are better opportunities than KTB.
Two Stocks to Watch:
Photronics (PLAB)
Market Cap: $2.14 billion
Sporting a global footprint of facilities, Photronics (NASDAQ: PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.
Why Could PLAB Be a Winner?
- Operating margin expanded by 10.8 percentage points over the last five years as it scaled and became more efficient
- Share buybacks catapulted its annual earnings per share growth to 30.8%, which outperformed its revenue gains over the last five years
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures, and its returns are growing as it capitalizes on even better market opportunities
Photronics’s stock price of $36.44 implies a valuation ratio of 18.8x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
ESCO (ESE)
Market Cap: $5.28 billion
A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE: ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.
Why Are We Backing ESE?
- Sales pipeline is in good shape as its backlog averaged 29% growth over the past two years
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 30.9% annually, topping its revenue gains
At $204.19 per share, ESCO trades at 26.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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 9 Market-Beating Stocks. 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).
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