The Russel 2000 INDEXRUSSELL: RUT has lagged the broad market for years because small-cap names carry greater than average risk in economically constrained environments. Economic constraints include inflation, higher interest rates and the unknown impact on consumer spending and income, but those headwinds are waning.
At the very least, those headwinds are expected to abate soon, which has created a huge shift in the market. Sector rotation is the name of the game these days, a rotation from big caps, mega-tech and the Magnificent Seven to small caps and the Russell 2000, and it’s not too late to get in.
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How high can the Russell 2000 go? It’s pretty high, based on its historical performance and where it stands today. The Russell 2000 is still 8.7% below its all-time highs set in 2022, while major indices including the S&P 500 NYSEARCA: SPYthe Dow Jones Industrial Average NYSEARCA: DIAand the NASDAQ NASDAQ: QQQ, have all made new highs, rising 10% to 15% above the 2022 breakout point. The bottom line is that the Russell 2000 is likely to make a new all-time high by year-end and then post another double-digit gain in 2025. Here are some of the winners.
Super Micro Computer plays in the big league
SMCI
Supermicrocomputer
€710.23
-1.96 (-0.28%)
(As of 10:04 AM ET)
52 weeks reach €226.59
▼
$1,229.00
P/E ratio 39.81
Price target $999.92
Supermicrocomputer NASDAQ: SMCI is a small-cap stock that competes in the big competition with semiconductor companies such as NVIDIA NASDAQ: NVDA And Advanced micro devices NASDAQ: AMDThe semiconductor solutions focus on server and data storage solutions for data centers, including the software to run them and services to support them.
Highlights from fiscal 2024 include revenue growth surging to 100% in Q2, accelerating to 200% in Q3, and a solid outlook with 37% sequential growth expected in Q4. At the rate this company is growing, it won’t be a small-cap stock for much longer. Analysts have moderated their sentiment this past quarter but remain steadfast in their belief that this stock will rise. The consensus is for an upside of 40%, and the top end of the range opens the door for this stock to double over the next 12 months.
Carvana has secular tailwinds to fuel its growth
€133.55
+0.70 (+0.53%)
(As of 10:03 a.m. ET)
52 weeks reach €25.09
▼
€147.25
P/E ratio 58.57
Price target €105.14
Caravan NYSE: CVNA has struggled for the past year to 18 months and is not out of the woods yet, but there is a shift underway that the company has set up to sustain long-term growth. Some of the drivers are its digital-first capabilities, its ability to scale at a low cost, and the aging U.S. vehicle fleet. The average age of a U.S. car is at a record high, setting this market up for an upgrade cycle that the FOMC rate cuts will trigger.
Highlights from the FQ1 2024 release include a return to growth, a return to profitability and a outlook for operational improvements sequentially. Analysts react positively to the news, upgrading sentiment from Reduce to Hold following the release and raising the price target by 20%. The consensus lags the market but is up 250% in the past 12 months; the high end of the range implies a 20% upside, a near three-year high.
elf Beauty: 20% Correction is a Beautiful Entry Point
ELEVEN
eleven Beauty
€ 177.90
-4.92 (-2.69%)
(As of 10:03 a.m. ET)
52 weeks reach €88.47
▼
$221.83
P/E ratio 80.14
Price target €210.00
eleven Beauty NYSE: ELF shares corrected 20% this summer, but the pullback is not a problem given the 1000% gains seen in the past 12 months. The gains are driven by results, including outperformance and market share gains from established cosmetics companies globally. One reason for the correction is the 2025 guidance, which was considered cautious.
The company expects to keep growth at a pace of 20% to 22%, but will likely outperform the company. The notable detail is that the company continues to gain market share and grow profits, and the guidance has prompted analysts to improve sentiment and raise targets. Post-release activity has changed sentiment from Buy to Hold, and the consensus is up 14% since the previous release, about 17% above current price action. The most recent targets have taken the market to a new all-time high.
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