Small-cap stocks could continue to outperform ahead of the Q1 earnings season
Which Russell 2000 stocks are worth watching right now?
Stock markets have bounced back strongly in recent weeks. The S&P 500 and the both hit record highs on Wednesday.
Over the past month, the S&P 500 has gained 4.83%, while the Nasdaq has risen 7.34%.
But one US index has done even better. The US Small Cap 2000, which tracks smaller companies, is up 8.40% in the past month.
The ongoing Q1 2026 earnings season could push this further. Analysts expect small companies to grow earnings by 18.4%, compared with 9.8% for companies in the S&P 500.
This implies that we can expect more positive surprises in small-cap earnings than in those of large-cap companies over the coming weeks.
In the longer term, small-caps could also benefit from a resurgence in expectations of Fed rate cuts, given that small-caps—which are generally considered more dependent on credit than large companies—are seen as more sensitive to rate forecasts.
Indeed, the war with Iran and its impact on oil prices have weighed heavily on rate cut expectations, but the latest reports suggest the conflict could end soon. This raises hopes that oil prices will return to more normal levels, which would lower inflation forecasts, thereby paving the way for further rate cuts.
Finally, US President Donald Trump’s protectionist policies also favor small-caps, which are often focused on the domestic US market.
12 Undervalued US Small-Caps Showing Upside Potential
In this context, we set out to identify the best opportunities among stocks using the Investing.com screener with the following search criteria:
Russell 2000 stocks
Nano-caps excluded
Potential of over 40% based on Fair Value (synthesis of valuation models)
Potential of over 40% based on the average analyst target
Overall Health Score greater than 2.5/5
Growth health score above 2.5/5
Cash flow health score above 2.5/5
This research has allowed us to identify 12 opportunities:
More specifically, these Russell 2000 stocks are currently undervalued by 40.7% to 71.6% based on InvestingPro’s fair value estimates, while analysts see potential upside of 44.5% to 121.2%.
Among the stocks on this list is , an independent insurance broker that is reshaping how home and auto insurance is distributed in the United States through a technology-driven, franchise-based model. Instead of offering only its own products like traditional insurers, Goosehead compares quotes from more than 200 companies in real time to find the best coverage at the best price. This approach aligns with the rise of digital comparison platforms and the broader shift toward digitisation in financial services. With insurance premiums in the US continuing to rise, its role as an independent intermediary is becoming increasingly important.
Also on the list is , a SaaS platform serving small service businesses such as plumbers, physical therapists, gyms and renovation firms. It provides an all-in-one solution covering scheduling, billing, payments, and customer management. The company is benefiting from the ongoing digital transformation of small service businesses, a segment that has long remained under-digitised. The integration of AI tools to automate customer interactions and improve workflows is also helping strengthen retention across its base of more than 700,000 customers.
Our research also identified , a biopharmaceutical company focused on rare neurological disorders such as narcolepsy, certain forms of epilepsy and Prader-Willi syndrome. These are chronic and underserved conditions. Its lead drug, WAKIX, is the first approved treatment of its kind for narcolepsy and has recently been expanded for use in children. The company’s focus on rare diseases is attractive due to regulatory advantages, higher pricing power, and limited competition, while also aligning with the growing shift toward precision medicine in the pharmaceutical industry.
However, other stocks on the list show even higher potential according to analysts and/or Fair Value!
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such, it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remain with the investor.
