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.
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 steer clear of and some alternatives to watch instead.
Merchants Bancorp (MBIN)
Market Cap: $2.28 billion
With a strategic focus on low-risk, government-backed lending programs, Merchants Bancorp (NASDAQCM:MBIN) is an Indiana-based bank holding company specializing in multi-family mortgage banking, mortgage warehousing, and traditional banking services.
Why Does MBIN Give Us Pause?
- Sales trends were unexciting over the last two years as its 5.6% annual growth was below the typical banking company
- Operational productivity has decreased over the last five years as its efficiency ratio worsened by 16.6 percentage points
- Tier one capital ratio of 9.4% is insufficient to meet regulatory requirements, increasing the probability of government intervention
Merchants Bancorp is trading at $49.62 per share, or 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than MBIN.
City Holding (CHCO)
Market Cap: $1.96 billion
With roots dating back to 1957 and a strategic presence along the I-64 and I-81 corridors, City Holding (NASDAQGS:CHCO) operates as a financial holding company providing banking, trust, and investment services through its subsidiary City National Bank across West Virginia, Kentucky, Virginia, and Ohio.
Why Are We Cautious About CHCO?
- Muted 9.8% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Estimated net interest income growth of 3.7% for the next 12 months implies demand will slow from its five-year trend
- Estimated tangible book value per share growth of 8.4% for the next 12 months implies profitability will slow from its two-year trend
City Holding’s stock price of $139.93 implies a valuation ratio of 2.4x forward P/B. Read our free research report to see why you should think twice about including CHCO in your portfolio.
BankUnited (BKU)
Market Cap: $3.03 billion
Born from the ashes of a failed Florida thrift during the 2009 financial crisis, BankUnited (NYSE: BKU) is a regional bank that provides commercial lending, deposit services, and treasury solutions to businesses and consumers primarily in Florida and the New York metropolitan area.
Why Is BKU Risky?
- Annual net interest income growth of 5.5% over the last five years was below our standards for the banking sector
- Net interest margin of 2.9% reflects its high servicing and capital costs
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
At $42.46 per share, BankUnited trades at 1x forward P/B. To fully understand why you should be careful with BKU, check out our full research report (it’s free).
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
