3 Russell 2000 Stocks That Are Growing Faster Than the S&P 500
Small-cap stocks have been on a dreadful run over the past decade or so. With the rise of the tech titans, more and more of the market’s total capitalization has gone to just a few firms such as Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) while leaving small companies in the dust.
However, these things tend to run in cycles. And, over the longer-term, investing firm MSCI has found that small-caps outperform the rest of the market. That’s especially true when coming out of a recession — meaning that small-caps could be entering a sweet spot for superior returns in the next year or two.
Part of the reason why small-caps have struggled recently is a lack of growth as compared to large tech firms. However, the Russell 2000 Index contains, as its name would suggest, two thousand companies. There are some growth gems among them. Here are three small-cap stocks to own with sizzling growth rates in recent years.
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Vicor (VICR)
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Vicor (NASDAQ:VICR) designs and manufactures modular power components. These are used for converting, controlling and regulating power supplies for a goods in a variety of industries including aerospace, defense, telecommunications, and transportation among others.
The firm has grown rapidly in recent years as markets such as telecom and electrical vehicles have driven a great increase in demand for power components. Indeed, VICR stock shot up from $60 to more than $90 this summer on a blisteringly hot earnings report. But things have gone in reverse now.
VICR stock tumbled in October following a solid earnings report. The decline came due to a weak bookings number, suggesting that the current lag in industrial activity is hitting Vicor’s business. It’s true that the company may see its rapid earnings growth cool off in 2024.
But the longer-term story should reassert itself once things pick back up. VICR stock is now under $40 per share, which is a massive drawdown from where it was just a few months ago. That seems overblown given the firm’s strong track record of earnings and revenue growth in recent years.
First Bancorp (FBP)
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First Bancorp (NYSE:FBP) is the holding company for FirstBank Puerto Rico. This is one of the relatively few banks that serves the Puerto Rican market.
While Puerto Rico is part of the United States, it is technically an unincorporated territory. As such, it operates under a much different legal and economic framework than the 50 states of the country. In addition, Puerto Ricans primarily speak Spanish rather than English. Given these factors, most U.S. banks have little interest in the Puerto Rican market, leaving it to a handful of local banks specialized in that jurisdiction’s particular needs.
Puerto Rico went through hard times. Between an economic bust and multiple devastating hurricanes, Puerto Rico’s economy slumped and much of its population left during the 2010s.
However, the island has enjoyed a recovery since 2020. Between becoming a COVID-19 remote work beneficiary, the island’s tax-favored status has also attracted numerous wealthy investors who have taken up residence there.
Throw in a favorable interest rate environment, and First Bancorp has seen its net interest income soar more than 50% since 2017. It earns a net interest margin (NIM) of 4.4%, which is far above the median U.S. regional bank. And its isolated geographical market should keep it safe from the deposit flight that plagued some mainland U.S. banks this year. All that makes FBP stock a great play on Puerto Rico’s continuing revival.
Livent (LTHM)
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Livent (NYSE:LTHM) is a specialty chemical company focused on the production of lithium.
Like many lithium firms, Livent has enjoyed incredible growth in recent years. Livent’s revenues soared from $388 million in 2019 to $813 million last year, with additional growth expected for full-year 2023.
Livent built its business on a highly-profitable low-cost series of lithium deposits in Argentina. Additionally, the firm is planning to merge with Allkem to add to and diversify its operations. At the moment, LTHM stock goes for less than 8x forward earnings.
Despite the positives, shares have gotten pummeled this year amid a large sell-off in the spot lithium market. That’s a headwind, to be certain. But it appears to be far overdone. Morningstar analyst Seth Goldstein believes Livent shares are worth an amazing $38/share compared to their current $14 share price today.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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