A number of small caps have been running rings around the market even as the All Ordinaries (Index:^AORD) (ASX:XAO) index rallied to an all-time record high on Thursday.
While the All Ords and S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index may have pulled back today, make no mistake that risk appetite remains strong.
You can see that from the fact that the indices recovered from this morning's low as we head into the last hour of trade. The losses have also been modest in comparison to the fall on the US market.
As long as investors are comfortable with buying risk assets, small caps are likely to outperform and there are two ASX shares at the small end of town that UBS thinks you should be snapping up.
One small cap stock for prosperity
The first is newly listed fintech company PROSPA GRP/ORD UNRESTR NPV (ASX: PGL), which only started life as a public company in early June.
Prospa Group has a first mover advantage as Australia's largest online lender to small and medium sized businesses with a circa 49% market share. UBS initiated coverage on the stock with a "buy" recommendation and $4.55 price target.
"We believe PGL has grown because it services demand for SME loans that is unmet by the major banks, and improves the customer experience through speed (c.10-minute application), personalised service and online convenience," said UBS.
"We expect PGL's loan originations to increase from $487m in FY19E to ~$1.8b in FY25E (25% CAGR), without the need for additional equity."
The PGL share price is up around 20% over the past month.
Mega opportunity for patient investors
Another emerging stock that's chalked up a similar gain is the Megaport Ltd (ASX: MP1) share price. The company provides data connectivity services to enterprise customers who use cloud services.
"Underlying demand for the cloud is strong and looks to be accelerating, which in turn is driving demand for data centres connectivity," said UBS.
"We believe we are entering an age where data dominates new technologies and MP1's software-defined-network (SDN) provides the highway for that data to travel between the cloud and lower tiered DCs [data centres]."
However, the stock isn't cheap – not when its trading near record highs. A lot of near-term good news is already priced into the MP1 share price, which is up over 80% on the year.
On the other hand, UBS thinks that the stock is still worth buying for those willing to hold the stock over the medium or longer-term, particularly because there's a chance Megaport could beat UBS' optimistic growth expectations.
UBS has a "buy" recommendation on the stock with a $8.65 price target.
Looking for another emerging ASX stock with the potential to race ahead in FY20? The experts at the Motley Fool believe they have uncovered such a candidate.
Follow the free link below to find out what this stock is.
