Small caps are finally having their moment.

A Bloomberg article notes that the Russell 2000 just logged its longest winning streak versus the S&P 500 since 2019, as investors rotate toward smaller names after years of large-cap dominance.

But what’s easy to miss is where this rotation actually starts.

Early small-cap rallies tend to favor laggards with improving fundamentals, not yesterday’s winners. When sentiment shifts, deeply discounted operators showing operational progress often move first. That sets the stage for one beaten-down industrial quietly trying to turn the corner.

You’re getting the best trade ideas. What’s your plan after you cash in?

You don’t have to figure it out alone. Take a 30-second quiz to redeem a free first call with a financial advisor in Money Pickle’s vetted network.

Make sure your wins today fuel your future success.

NFI Group $NFI.TSX ( ▲ 3.14% ) has been left for dead by the market. The Canadian bus manufacturer is down ~73% from its highs in 2019, weighed down by execution issues, cost overruns, and a string of investor disappointments.

Yet beneath the bruises, the business is showing signs of life. NFI operates across North America, Europe, and the UK, building transit buses, coaches, and electric vehicles for public agencies with long planning cycles and sticky demand.

Recent results did little to excite at first glance. But a closer read suggests the stock’s punishment may have gone too far, especially as operational improvements start to surface.

The headline drag came from a $230 million battery warranty provision tied to a recall affecting roughly 700 electric buses. That is real money and real risk, but it also masks underlying progress.

In Q3, adjusted EBITDA rose 52% year over year, while free cash flow improved by ~$13 million. Excluding the recall charge, manufacturing gross margins would have reached 10.2%, and gross profit per unit jumped 58% to $66,300.

Pricing power is improving as higher-value contracts move through production. Since 2021, average selling prices for heavy-duty buses are up 64%, reflecting both inflation pass-through and a richer mix of orders.

NFI exited the quarter with a backlog of more than 15,000 units valued at $13 billion, offering rare revenue visibility in an industrial turnaround. Liquidity sits near $400 million, and leverage is trending lower.

Management expects the strongest quarterly EBITDA in company history in Q4, while tariffs are treated as pass-through costs and new manufacturing capacity reduces cross-border risk.

Analysts forecast free cash flow swinging sharply positive over the next two years. At today’s valuation, the stock implies an upside of ~32% based on consensus price target.

Turnarounds are never smooth. But this one is no longer standing still.