Small-cap stocks are coming into their own. Although they’ve experienced a pretty poor run over the past few years, they began to outshine their larger brethren beginning late last year. Since the stock market’s low point in October, the Russell 2000 stocks index gained 28%, as compared to the S&P 500‘s 26% return. It’s even beating the tech-heavy Nasdaq 100!
That’s no small feat. The Russell 2000 stocks index doesn’t have the luxury of an Nvidia (NASDAQ:NVDA) to tear up the stock charts. But as inflation has eased and the Federal Reserve hints at interest rate cuts to come, small-caps are shining. And history shows that over time small-cap stocks outperform bigger companies.
So as small-cap stocks enter a new growth phase, now is the time to take a closer look at these three Russell 2000 stocks poised for big moves in April.
Abercrombie & Fitch (ANF)
There is arguably no bigger surprise in the retail sector than Abercrombie & Fitch (NYSE:ANF). The one-time teen retailer best known for the chiseled bodies of its models has transformed itself into a mature apparel stock aimed squarely at the 22- to 45-year-old adult demographic.
That extends to its Hollister brand as well. Once the epitome of the surf-and-sand teen ethos, the retail shop now sees over 50% of its sales coming from 35- to 54-year-old shoppers. Few would have predicted that changing its target audience would have produced such a positive result. Yet over the past five years, ANF stock has generated outsized returns of 366% for investors. It was also the best-performing clothing retailer by a two-to-one margin in 2023.
In a new twist befitting Abercrombie’s transformation, the retailer announced last month it would enter the wedding industry with the central focus being wedding dresses. It might be a smart move. As the retailer’s customers are now older, helping them navigate the next phase of their life could gain traction. And why not, as it will extend the A&F Wedding Shop to include those well-known bridal accessories such as bikinis, pajamas and crochet-style coverups (hey, I only report this stuff).
Incredibly, despite its massive gains, Abercrombie & Fitch stock is still bargain-priced at 15 times next year’s earnings, less than twice its sales and less than 13x free cash flow.
Koppers Holdings (KOP)
Last November, I identified Koppers Holdings (NYSE:KOP) as the sort of under-the-radar stock investing legend Peter Lynch would love. After all, who thinks about a company that supplies crossties to railroads and telephone poles to utilities? Koppers is a major supplier of both in the U.S. and Australia, as well as a significant manufacturer of creosote to preserve the wood. It also has operations in South America and across Europe.
Since that pick, KOP stock is up 22% compared to a 16% gain by the Russell 2000 and a 14% jump in the S&P 500. The stock is now up 60% over the past year. There is no reason it won’t keep rising in April. Koppers just completed the acquisition of Brown Wood Preserving Company, a producer of pressure-treated wood utility poles.
Koppers generated over $2 billion in sales last year, the first time the company has crossed that threshold. Yet it is the fifth consecutive year it posted record revenue. Its new acquisition gives it 50% additional production capacity to grow even more. While it paid $100 million cash for the company, CEO Leroy Ball sees it “easily” adding $25 million or more to EBITDA by 2026 and be immediately accretive in its first full year of ownership.
And KOP stock offers an even bigger discount than ANF. Koppers trades at 10x expected earnings and goes for a fraction of both its estimated earnings growth rate and sales. Those earnings are expected to grow 18% annually long-term.
Smith & Wesson Brands (SWBI)
The third Russell 2000 stock ready to shoot out the lights this month is Smith & Wesson Brands (NASDAQ:SWBI). The firearms manufacturer was in a slump as the overheated gun buying surge of 2020 cooled off. But it’s another presidential election year and just as in the previous two elections, firearms sales should spike especially if gun control becomes a contentious theme again.
The FBI conducted 29.85 million criminal background checks on potential gun buyers in 2023, a record amount historically, but 25% fewer than the all-time record year in 2020.
SWBI stock is up 26% this year and 45% higher over the past 12 months. It spiked last month after the gunslinger reported sales rose 6% to $137 million and gained market share. It also expects strong growth this year due to presidential politics.
Smith & Wesson is also offering a discount on its shares. The world’s biggest gunmaker trades at 14 times estimates and less than twice sales. With analysts forecasting 15% long-term earnings growth, the storied firearms manufacturer is one you might want to holster in your own portfolio.
On the date of publication, Rich Duprey held a LONG position in SWBI stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
