Many small-cap stocks have limited Wall Street coverage, giving savvy investors the chance to act before everyone else catches on. But the flip side is that these businesses have increased downside risk because they lack the scale and staying power of their larger competitors.
These trade-offs can cause headaches for even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three small-cap stocks to avoid and some other investments you should consider instead.
Werner (WERN)
Market Cap: $2.07 billion
Conducting business in over a 100 countries, Werner (NASDAQ: WERN) offers full-truckload, less-than-truckload, and intermodal delivery services.
Why Should You Dump WERN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.1% annually over the last two years
- Earnings per share fell by 55.8% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Werner is trading at $34.41 per share, or 49.8x forward P/E. To fully understand why you should be careful with WERN, check out our full research report (it’s free).
Jackson Financial (JXN)
Market Cap: $8.02 billion
Spun off from British insurer Prudential plc in 2021 after more than 60 years as its U.S. subsidiary, Jackson Financial (NYSE: JXN) offers annuity products and retirement solutions that help Americans grow and protect their retirement savings and income.
Why Does JXN Fall Short?
- Growth in insurance policies was lackluster over the last two years as its 2.5% annual growth underperformed the typical financial institution
- Expenses have increased as a percentage of revenue over the last four years as its pre-tax profit margin fell by 26.1 percentage points
- Earnings per share have dipped by 1.9% annually over the past four years, which is concerning because stock prices follow EPS over the long term
Jackson Financial’s stock price of $118.04 implies a valuation ratio of 0.6x forward P/B. Dive into our free research report to see why there are better opportunities than JXN.
Commerce Bancshares (CBSH)
Market Cap: $7.79 billion
Founded in 1865 during the post-Civil War economic boom, Commerce Bancshares (NASDAQGS:CBSH) is a Midwest-focused bank holding company that provides retail, commercial, and wealth management services to individuals and businesses.
Why Are We Hesitant About CBSH?
- Annual revenue growth of 5.6% over the last five years was below our standards for the banking sector
- Muted 6% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Anticipated 1.3 percentage point rise in its efficiency ratio suggests its expenses will increase as a percentage of revenue
At $52.86 per share, Commerce Bancshares trades at 1.6x forward P/B. Read our free research report to see why you should think twice about including CBSH in your portfolio.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
