- Companies in the Russell 2000 Index are small-cap, growth-oriented names from a variety of industries. Tracking this index can provide diversification in sectors such as healthcare, financial services, technology, consumer discretionary, and others.
- Two such growth stocks that Wall Street believes are “Strong Buys” are biotech company Vaxcyte (PCVX) and tech company Applied Industrial (AIT). Let's see why analysts are so optimistic about these two.
Russell 2000 Stock #1: Vaxcyte
Valued at a market capitalization of $11.3 billion, Vaxcyte (PCVX) is a clinical-stage biotech company that develops vaccines for infectious diseases. It focuses primarily on pneumococcal diseases and other bacterial infections.
Growth stocks are frequently linked with the biotech sector, which has always been a hub for innovation. Vaxcyte stock has gained nearly 47% year-to-date, outperforming the S&P 500 Index’s ($SPX) gain of 27.2%.
The company employs a proprietary technology platform called the XpressCF cell-free protein synthesis platform, which enables the precise and scalable production of complex vaccine antigens.
VAX-24, the company's lead vaccine candidate, is a pneumococcal conjugate vaccine (PCV) designed to provide broader coverage than vaccines that are currently available. VAX-24 is being developed to protect against pneumococcal bacteria, which are a major cause of serious infections such as pneumonia, meningitis, and bloodstream infections. In the third quarter, the company announced positive topline efficacy data for the VAX-24 Phase 2 study in adults aged 65 and up.
It also reported positive topline efficacy data for another candidate, VAX-31, a 31-valent PCV in a Phase 1/2 clinical trial in adults. VAX-31 has been chosen to advance to the Phase 3 trial for adults in mid-2025 and for the Phase 2 study for infants in the first quarter of 2025.
Management stated that the company is continuing to invest in its early stage pipeline, which includes VAX-A1, a novel Group A Strep vaccine candidate; VAX-PG, a therapeutic vaccine candidate for periodontitis; and VAX-GI, a novel Shigella vaccination candidate.
The company reported a net loss of $103.1 million in the third quarter, which is typical for a biotech in its development stage. In September, the company completed an underwritten public offering of its shares, raising $1.5 billion in gross proceeds. It reported $3.3 billion in cash, cash equivalents, and investments at the end of the quarter.
The global pneumococcal vaccines market is expected to be worth $13.3 billion in 2033. Pfizer (PFE) and Merck (MRK), with their already popular pneumococcal conjugate vaccine, are formidable competitors. However, if approved, Vaxcyte's VAX-24 and future candidates could capture a sizable portion of this growing market.
Investors should be aware that clinical trials are fraught with uncertainties. As a result, Vaxcyte stock is ideal for investors with a high risk appetite and a long investment horizon.
Overall, Wall Street believes PCVX stock is a “Strong Buy.” Out of the nine analysts covering the stock, eight have a “Strong Buy” recommendation, and one rates it a “Moderate Buy.”
The average analyst target price of $148 for PCVX implies a 60% increase over current levels. Furthermore, analysts have set a high price target of $163, implying that the stock could rise as much as 80.2% over the next year.
Russell 2000 Stock #2: Applied Industrial Technologies
Applied Industrial Technologies provides a wide range of products and solutions for industrial, maintenance, and repair applications. Valued at $10.4 billion, Applied Industrial stock has gained 59% year-to-date, outperforming the broader market.
Applied Industrial is a top distributor of industrial supplies like abrasives, bearings, general industrial products, electric motors, and industrial chemicals. The company operates in two segments: Service Center Based Distribution and Engineered Solutions.
In the most recent first quarter of fiscal 2025, net sales rose 0.3% year on year to $1.1 billion. Net income per share fell to $2.36 from $2.39 in the prior year quarter.
Recently, the company announced plans to acquire Hydradyne, a leading provider of fluid power solutions and value-added services. When completed, the company anticipates that this acquisition will generate approximately $260 million in sales and be accretive to EPS.
The company's positive free cash flow has consistently fueled its growth initiatives and shareholder returns. In the first quarter, it generated $122.2 million in free cash flow. It pays a quarterly cash dividend of $0.37 per share, with a forward yield of 0.54% and a sustainable payout ratio of 15.1%. It has also increased its dividends over the past 15 years.
Management expects sales to either decline by 2.5% or increase by 2.5% for the full fiscal year while increasing the targets for earnings to range between $9.25 and $10 per share.
Analysts covering Applied Industrial expect revenue to grow by 1.5% in fiscal 2025, with earnings rising by 0.45%. Revenue and earnings are expected to grow by 5.7% and 8.6%, respectively, in fiscal 2026.
Recently, Baird analyst David Manthey reiterated his “Strong Buy” rating for the stock, stating that he was impressed by Applied Industrial's decision to acquire Hydradyne. Manthey believes that this acquisition will be a strong strategic fit for the company as it expands its footprint.
Applied Industrial's broad product portfolio, technical expertise, and loyal customer base position it for continued growth in the future. Furthermore, AIT stock provides a good balance of growth and income potential.
Overall, Wall Street believes AIT stock is a “Strong Buy.” Out of the eight analysts covering the stock, six have a “Strong Buy” recommendation, one rates it a “Moderate Buy,” and one recommends a “Hold.”
The average analyst target price of $285.71 for AIT implies a 5.6% increase over current levels. Furthermore, analysts have set a high price target of $325, implying that the stock could rise as much as 20.1% over the next year.
