One of the noteworthy developments that came out of the tech stock selloff in July was where investors turned. It wasn’t to other high-flying ventures but rather small-cap stocks. Since the beginning of July, the Russell 2000 stock index has outperformed the S&P 500 by better than two-to-one.

Over the past few years, small-cap stocks have been beaten down by the one-two punch of high inflation and high interest rates. Because these smaller companies don’t have the same access to financial resources that their larger brethren do, small-caps saw larger percentages of their capital go towards servicing debt. More often than not, they chose not to invest, causing them to lag.

However, the prospects for interest rate cuts by the Federal Reserve have revived their outlook. Investors realize that if small-caps can affordably finance their growth again, they will become the vehicle for economic expansion they are historically noted for.

With the landscape suddenly shifting, the following three Russell 2000 stocks look unstoppable. You just might want to buy them before the end of August and the rest of the market catches on.

24/7 Wall St. Insights:

• Investors are rotating away from tech stocks into small-cap stocks.
• The Russell 2000 is handily beating the S&P 500 since the tech selloff in July.
• If you want to pick up some of the most high upside stocks in the market “on sale,” check out our brand-new “The Next NVIDIA” report that lays out the next megatrends in AI and the companies we’re confident can dominate them and give investors 10x returns.

Rocket Lab USA (RKLB)

Elon Musk’s SpaceX rightly grabs most of the headlines as the most successful privately-owned space company, but Rocket Lab USA (NASDAQ:RKLB) is in second place and growing.

The company is a reliable launch services operation as well as designing and manufacturing spacecraft, flight software, and satellite components. Its premier Electron rockets have completed 52 launches to date and have successfully put 192 satellites into orbit from three launch sites in the U.S. and Australia.

While they are unmanned, mission-oriented rockets, Rocket Lab’s next-generation Neutron vehicles are poised for manned flight and interplanetary missions. They are meant for deep space exploration and, like SpaceX rockets, are reusable. Their first flight is scheduled for mid-2025.

RKLB stock is also ready to go into orbit. It wants to break SpaceX’s stranglehold on the medium launch market. In an interview with Yahoo Finance, CEO Peter Beck said half the rationale behind the Neutron rocket is “to break the monopoly that’s in medium launch right now” with the balance going towards putting its own components into space.

As the one real alternative to Musk’s venture, Rocket Lab USA is a Russell 2000 stock to buy today.

ABM Industries (ABM)

Janitorial and building maintenance services leader ABM Industries (NYSE:ABM) is the sort of under-the-radar stock investing legend Peter Lynch would love. The former Magellan Fund money manager transformed Fidelity Magellan from an unassuming $20 million in assets under management in 1977 to $14 billion in 1990 when he retired. He did so often by buying stocks of boring companies other investors ignored.

ABM Industries is just such a play. After bouncing back from the forced closures of offices due to the pandemic, the maintenance and cleaning stock is already on the way back. ABM stock is up 21% in 2024 and 35% higher over the last six months.

The company has been around for well over 100 years yet primarily sticks to its knitting with its essential services. ABM also pays a dividend that yields a respectable 1.6% annually. Yet it has made 232 consecutive quarterly dividend payments and has increased the payout for 56 straight years, making it a Dividend King. With a free cash flow payout ratio of just 30%, the dividend is secure and has plenty of room for future growth.

You’re not likely to see dramatic growth spurts, but it remains a reliable growth and income stock to own.

Petco Health & Wellness (WOOF)

Petcare services stock Petco Health & Wellness (NASDAQ:WOOF) is another company recovering from pandemic-induced upheavals to its business. Its situation is different from ABM’s, though. Where the latter saw its business crushed by the global health crisis, Petco’s business boomed.

During the lockdown phase of the pandemic, everyone seemingly bought a pet for comfort. Yet after the splurge on food, toys, and accessories, Petco went through withdrawal. Consumers reined in their spending and only now is business returning to the mean. The industry, though, remains on an inexorable upward trend.

According to the American Pet Products Association, U.S. petcare spending will rise 2% this year to $150.6 billion this year from $147 billion spent in 2023. Food and treats represent the large percentage of goods pet parents spend their money on, 43%. Another $38.3 billion — an additional 25% — will be spent on veterinary care and products.

Those play to Petco’s strengths. Consumables account for 49% of Petco’s $6.26 billion in annual sales while vet services are one of its fastest-growing opportunities. Revenue shot 10% higher in the fiscal first quarter on the strength of its growing network of animal hospitals and mobile clinics.

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