5 Low-Leverage Stocks to Watch Ahead of a Possible September Rate Cut

What Happened?

A number of stocks fell in the morning session after investors took some profits off the table as markets awaited signals on future monetary policy from the Federal Reserve's Jackson Hole symposium later in the week.

The downturn in the market was largely attributed to a significant sell-off in megacap tech and chipmaker shares. Nvidia, Advanced Micro Devices (AMD), and Broadcom all saw notable drops, dragging down the VanEck Semiconductor ETF. Other major tech-related companies like Tesla, Meta Platforms, and Netflix were also under pressure.

A key reason for this trend is that much of the recent market gains have been concentrated in the "AI trade," which includes these large technology and semiconductor companies. So this could also mean that some investors are locking in some gains ahead of more definitive feedback from the Fed.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Heavy Transportation Equipment company Commercial Vehicle Group fell 4%. Is now the time to buy Commercial Vehicle Group? Access our full analysis report here, it’s free.
• Engineering and Design Services company Sterling fell 3.3%. Is now the time to buy Sterling? Access our full analysis report here, it’s free.
• Maintenance and Repair Distributors company DXP fell 4.2%. Is now the time to buy DXP? Access our full analysis report here, it’s free.
• Engineered Components and Systems company Graham Corporation fell 3.5%. Is now the time to buy Graham Corporation? Access our full analysis report here, it’s free.
• Waste Management company Montrose fell 3.1%. Is now the time to buy Montrose? Access our full analysis report here, it’s free.

Zooming In On DXP (DXPE)

DXP’s shares are very volatile and have had 23 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 10 months ago when the stock gained 21.5% on the news that the company reported strong third-quarter earnings. DXP blew past analysts' sales, EPS, and EBITDA estimates as its acquisition-driven strategy continued to pay off. Notably, the company closed five acquisitions through the third quarter and already added two more for the next quarter. Zooming out, we think this was a good quarter with some key areas of upside.

DXP is up 37.5% since the beginning of the year, and at $116.06 per share, it is trading close to its 52-week high of $122.29 from August 2025. Investors who bought $1,000 worth of DXP’s shares 5 years ago would now be looking at an investment worth $6,070.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

Sterling Infrastructure, Inc. STRL reported second-quarter 2025 results on Aug. 4, with both earnings and revenues exceeding the Zacks Consensus Estimate by 19% and 10.7%, respectively. The company also delivered strong year-over-year growth across key metrics. Adjusted diluted earnings per share came in at $2.69, up 41% year over year, while revenues increased 21% (excluding the impacts of RHB deconsolidation).

The company’s performance benefited from a strong increase in E-Infrastructure Solutions and Transportation Solutions, which offset weakness in the Building Solutions segment. The gross margin expanded 400 basis points to 23%, marking a new high as the business continued to shift toward higher-margin service offerings. Supported by revenue growth and margin expansion, adjusted EBITDA advanced 35% from the prior-year quarter.

STRL Stock Outperforms Peers, Industry & Market

Shares of Sterling have gained 51.4% in the past three months compared with the Zacks Engineering - R and D Services industry’s and the S&P 500’s rallies of 11.3% and 8.8%, respectively. The STRL stock has also outperformed the broader Construction sector's 9.6% rise during the same period. Sterling stock has been on an upward trajectory since reporting its second-quarter 2025 results on Aug. 4, rising 6.6%.

The STRL stock has outperformed some other players, including AECOM ACM, Fluor Corporation FLR and KBR, Inc. KBR. In the past three months, AECOM and Flour have rallied 9.7% and 10.5%, respectively, while KBR has lost 10.5%.

Sterling’s second-quarter results underscored strong execution and momentum. The next step is to look at what may shape the company’s path forward — let us delve deeper.

E-Infrastructure Momentum Gains Strength

Sterling’s E-Infrastructure Solutions segment continued to lead growth in the second quarter, supported by rising demand for large-scale data centers and e-commerce distribution facilities. Revenues in the segment increased 29% year over year, while adjusted operating income grew 57%. Margins expanded by more than 500 basis points to 28%, reflecting improved project execution and a shift toward mission-critical work.

Data center revenues more than doubled in the quarter, and e-commerce backlog also showed meaningful growth. Bookings remained strong, with data centers now accounting for 62% of the segment’s total backlog, while e-commerce distribution backlog skyrocketed nearly 700% year over year.

Moving forward, the company expects E-Infrastructure revenues to rise 18-20% in 2025, with operating profit margins holding in the mid-to-high 20%.

Backlog Expansion Supports Visibility

The company exited the second quarter with a strong backlog position, providing clear visibility into future revenue streams. Total backlog reached $2 billion, up 24% from the prior year, while E-Infrastructure backlog grew 44% to $1.2 billion. In addition, Sterling maintained approximately $750 million in future-phase opportunities tied to existing projects, bringing combined visibility close to $2 billion for E-Infrastructure.

This expanded pipeline strengthens confidence in the company’s multi-year growth prospects, with management citing increasing customer demand and sustained capital investment plans.

Transportation Solutions Drives Profitability

Sterling’s Transportation Solutions segment is positioned for steady growth, supported by a healthy backlog and favorable market dynamics. Backlog for the segment stood at $715 million at the end of the quarter, up 5% year over year, though sequentially lower due to strong revenue burn and seasonal award timing. The company is approaching the final year of the current federal funding cycle, which runs through September 2026, providing more than two years of visibility and supporting strong bid activity in core Rocky Mountain and Arizona markets.

The planned downsizing of low-bid heavy highway operations in Texas is progressing as intended, resulting in some moderation of revenues and backlog but creating a more profitable mix. Looking ahead, Sterling expects Transportation Solutions revenue growth in the low-to-mid teens on an adjusted basis for 2025, with operating profit margins improving into the low teens from the 9.6% registered in 2024.

Expansion Through Acquisition

Sterling continues to advance its strategy of strengthening the E-Infrastructure platform through targeted acquisitions. The pending $505-million purchase of CEC Facilities Group will add mission-critical electrical and mechanical services to the portfolio, enhancing the company’s ability to deliver end-to-end solutions.

The company expects the integration to create cross-selling opportunities, accelerate project timelines and expand Sterling’s geographic footprint. Once closed, the acquisition is set to deepen customer relationships and support long-term growth across high-demand infrastructure markets.

Upward Estimate Revisions for Sterling

Wall Street analysts remain optimistic about STRL’s earnings potential. Over the past 30 days, earnings estimates for 2025 have been revised upward to $8.90 per share from $8.61. The estimate indicates growth of 45.9% from that reported a year ago.

Conversely, AECOM and KBR’s earnings in the current year are likely to witness year-over-year increases of 15.9% and 13.2%, respectively, while Fluor’s earnings are expected to decline 12.5%.

A Look at Sterling Stock’s Valuation

From a valuation standpoint, the company is currently trading at a premium relative to its industry and historical metrics, with its forward 12-month price-to-earnings (P/E) ratio sitting above its five-year average.

Moreover, STRL is priced higher than some of its industry peers, such as AECOM, Fluor and KBR, which trade at 21X, 18.95X and 12.25X, respectively.

Conclusion: Why is STRL Stock a Buy?

Sterling’s second-quarter results highlighted strong execution, margin gains and solid visibility, backed by a growing backlog. Demand in mission-critical data centers and transportation markets, along with the acquisition of CEC Facilities Group, reinforces the company’s positioning for long-term growth. Its disciplined approach to bidding and focus on higher-margin opportunities continue to strengthen profitability and build resilience across market cycles.

Upward earnings estimate revisions for 2025 reflect analyst confidence in Sterling’s outlook. Despite trading at a premium to peers, the stock’s consistent performance, expanding end-market exposure and favorable growth drivers justify this position.

Backed by these factors, Sterling currently has a Zacks Rank #2 (Buy), signaling that the stock remains attractively placed for investors heading into the next phase of 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

The Russell 2000 is home to many small-cap stocks, offering investors the chance to uncover hidden gems before the broader market catches on. However, these companies often come with higher volatility and risk, as their smaller size makes them more vulnerable to economic downturns.

Navigating this part of the market can be tricky, which is why we built StockStory to help you separate the winners from the laggards. That said, here are two Russell 2000 stocks that could be the next big thing and one that may struggle to keep up.

One Stock to Sell:

CoreCivic (CXW)

Market Cap: $2.23 billion

Originally founded in 1983 as the first private prison company in the United States, CoreCivic operates correctional facilities, detention centers, and residential reentry programs for government agencies across the United States.

Why Are We Wary of CXW?

• Flat sales over the last five years suggest it must find different ways to grow during this cycle
• Performance surrounding its average available bedshas lagged its peers
• Underwhelming 6.1% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $21.15 per share, CoreCivic trades at 16.8x forward P/E. To fully understand why you should be careful with CXW, check out our full research report (it’s free).

Two Stocks to Watch:

Sterling (STRL)

Market Cap: $8.38 billion

Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure provides civil infrastructure construction.

Why Are We Backing STRL?

• 9.9% annual revenue growth over the last five years surpassed the sector average as its offerings resonated with customers
• Free cash flow margin increased by 12.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
• Improving returns on capital reflect management’s ability to monetize investments

Sterling’s stock price of $276.16 implies a valuation ratio of 31.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

Rumble (RUM)

Market Cap: $2.68 billion

Founded in 2013 as a champion for content creator rights and free expression, Rumble is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.

Why Does RUM Stand Out?

• Impressive 19% annual revenue growth over the last two years indicates it’s winning market share this cycle
• Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory

Rumble is trading at $7.94 per share, or 19.8x trailing 12-month price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.

Stocks We Like Even More

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return).

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What Happened?

A number of stocks fell in the afternoon session after an unexpectedly sharp rise in wholesale inflation fueled concerns about rising costs and their impact on corporate profits. The primary catalyst was the July 2025 Producer Price Index (PPI), a measure of inflation at the wholesale level, which jumped 0.9% against forecasts of a 0.2% rise. This represents the most significant monthly increase in over three years, pointing to mounting cost pressures for manufacturers, with tariffs cited as a key factor. This data complicates the Federal Reserve's upcoming interest rate decisions, as persistent inflation may prevent rate cuts, creating a headwind for cyclical sectors like Industrials.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Construction and Maintenance Services company Orion fell 3.1%. Is now the time to buy Orion? Access our full analysis report here, it’s free.
• Defense Contractors company Mercury Systems fell 3.4%. Is now the time to buy Mercury Systems? Access our full analysis report here, it’s free.
• Engineered Components and Systems company Gates Industrial Corporation fell 3.4%. Is now the time to buy Gates Industrial Corporation? Access our full analysis report here, it’s free.
• General Industrial Machinery company John Bean fell 3.3%. Is now the time to buy John Bean? Access our full analysis report here, it’s free.
• Engineering and Design Services company Sterling fell 3.1%. Is now the time to buy Sterling? Access our full analysis report here, it’s free.

Zooming In On Mercury Systems (MRCY)

Mercury Systems’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 2 days ago when the stock gained 24.9% on the news that the company reported second-quarter 2025 results that significantly beat Wall Street's expectations for both revenue and profitability. The aerospace and defense firm announced revenue of $273.1 million, a 9.9% year-on-year increase that surpassed analyst estimates of $244.2 million. The company's bottom line was even more impressive, with adjusted earnings per share of $0.47, more than double the consensus forecast of $0.22. This strong performance was also reflected in its operational efficiency, as its operating margin improved to 8.6% from a negative 3.2% in the same period last year. Additionally, Mercury Systems reported a healthy backlog of $1.4 billion, indicating a solid pipeline of future business.

Mercury Systems is up 60.3% since the beginning of the year, and at $67.83 per share, it is trading close to its 52-week high of $68.39 from August 2025. Investors who bought $1,000 worth of Mercury Systems’s shares 5 years ago would now be looking at an investment worth $849.04.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.

Civil infrastructure construction company Sterling Infrastructure reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 5.4% year on year to $614.5 million. The company expects the full year’s revenue to be around $2.13 billion, close to analysts’ estimates. Its non-GAAP profit of $2.51 per share was 11.4% above analysts’ consensus estimates.

Is now the time to buy STRL? Find out in our full research report (it’s free).

Sterling (STRL) Q2 CY2025 Highlights:

• Revenue: $614.5 million vs analyst estimates of $554.4 million (5.4% year-on-year growth, 10.8% beat)
• Adjusted EPS: $2.51 vs analyst estimates of $2.25 (11.4% beat)
• Adjusted EBITDA: $125.6 million vs analyst estimates of $110.5 million (20.4% margin, 13.7% beat)
• The company lifted its revenue guidance for the full year to $2.13 billion at the midpoint from $2.1 billion, a 1.2% increase
• Management raised its full-year Adjusted EPS guidance to $9.34 at the midpoint, a 8% increase
• EBITDA guidance for the full year is $445.5 million at the midpoint, above analyst estimates of $422.3 million
• Operating Margin: 17.6%, up from 12.7% in the same quarter last year
• Market Capitalization: $9.38 billion

StockStory’s Take

Sterling delivered Q2 results that surpassed Wall Street’s revenue and non-GAAP profit expectations, driven by strong demand in its E-Infrastructure Solutions and Transportation segments. Management attributed the quarter’s performance to rapid growth in mission-critical data center projects, a favorable shift toward higher-margin services, and strong execution in project management. CEO Joseph Cutillo highlighted a 29% increase in E-Infrastructure revenue and noted, “Data centers are now 62% of our total backlog and E-Infrastructure.” The company’s ability to execute large, complex projects ahead of schedule was a recurring theme in management’s remarks.

Looking forward, Sterling’s guidance reflects confidence in continued demand for data centers, manufacturing facilities, and e-commerce distribution projects. Management is optimistic about margin expansion opportunities as project complexity grows and expects to leverage the pending CEC Facilities Group acquisition to deliver integrated, end-to-end solutions. Cutillo stated, “We are getting pulled into new geographies by our customers, including Texas, and believe that the pending CEC acquisition will only accelerate our footprint expansion.” The company’s outlook is also supported by a growing backlog and multiyear customer commitments.

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to strength in data center construction, productivity gains from large projects, and favorable service mix shifts.

• Data center project surge: E-Infrastructure revenue growth was led by major data center projects, with management reporting that these contracts now comprise 62% of the segment’s backlog. The company’s ability to deliver on time or ahead of schedule was cited as critical to winning new business, especially as projects become increasingly complex and larger in scale.
• Expanding geographic reach: Sterling is actively pursuing expansion into Texas and, over the longer term, the Northwest, following customer demand for infrastructure in new regions. Management highlighted both organic growth and the potential for acquisitions to accelerate this strategy.
• Margin expansion from project complexity: As data center and manufacturing projects grow in size and complexity, management expects to sustain or improve margins due to higher productivity and the company’s expertise in managing risk and execution. Larger projects allow Sterling to leverage efficiencies across phases, which supports improved profitability.
• E-commerce distribution momentum: Management described a significant recovery in e-commerce distribution projects, with backlog up nearly 700% and several large, multi-phase warehouse contracts expected to begin in the second half of the year. These projects are larger and more lucrative than in previous cycles, providing incremental tailwinds for both revenue and margins.
• Building Solutions headwinds: The Building Solutions segment faced ongoing softness due to housing affordability issues, but management has responded by focusing on pricing discipline and variable labor strategies. While the segment is down, Sterling’s diversified portfolio and flexible cost structure have helped offset these challenges.

Drivers of Future Performance

Sterling’s outlook is anchored by sustained data center demand, margin gains from complex project execution, and strategic expansion efforts.

• Data center and e-commerce strength: Management expects continued growth in data center and e-commerce distribution projects, underpinned by multi-year customer investment plans and an expanding project pipeline. The company is targeting high-teens to 20% revenue growth in E-Infrastructure, with mid- to high-20% adjusted operating margins, reflecting the shift toward larger, higher-margin contracts.
• Strategic acquisitions and market entry: The pending acquisition of CEC Facilities Group is expected to accelerate Sterling’s expansion into Texas and strengthen its ability to offer integrated electrical and mechanical solutions. Management also signaled ongoing interest in additional acquisitions, particularly to support geographic and service line growth in the Southeast and Northwest.
• Risks from housing and market cycles: While E-Infrastructure and Transportation are poised for growth, Building Solutions remains challenged by affordability issues and soft demand. Management is mitigating these headwinds with variable labor and pricing discipline but acknowledges that broader macroeconomic conditions, especially interest rates, could impact recovery timing in this segment.

Catalysts in Upcoming Quarters

In the upcoming quarters, our analysts will be watching (1) Sterling’s ability to secure and execute large data center and e-commerce projects in new markets such as Texas, (2) progress on closing and integrating the CEC Facilities Group acquisition, and (3) whether margin expansion in E-Infrastructure and Transportation can offset ongoing softness in Building Solutions. The evolution of the project pipeline and any further acquisition activity will also be important markers.

Sterling currently trades at $304.51, up from $272.50 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

High Quality Stocks for All Market Conditions

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return).

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.