'100% upside': 2 small-cap ASX shares Cyan is quietly riding to the moon

Here is a pair of smaller companies going gangbusters, which the stock market hasn't quite fully appreciated yet.

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Small cap ASX shares suffered more than most in 2022, but there's a theory from many experts that they will make a roaring comeback in 2023.

But with those small fish, one needs to be extra fussy about which stocks to buy into.

"There's a lot of variability in there," Cyan portfolio manager Graeme Carson said in a Reach Markets video.

"It's very much about stock picking. Very much about picking the eyes out of it. To do that you need to do grassroots research, because a lot of these companies are undiscovered."

With this in mind, Carson named two ASX shares that his fund is holding very tightly for the long run:

Get most of the assets for free

Carson's partner at Cyan, Dean Fergie, has previously told The Motley Fool multiple times how much he believes in craft beer maker Mighty Craft Ltd (ASX: MCL).

Carson is no different, holding it up as a shining example of Cyan's growth portfolio.

"They hold a portfolio of liquor assets in boutique beer, ready-to-drink alcohol, cider and Aussie spirits," he said.

"We think there's pretty comfortable upside, even up to 100% upside, on a pretty conservative basis, for this one."

The Mighty Craft share price has dropped 43% over the past 12 months. But this year it has headed 11% up on the back of hype behind its Better Beer brand, which is co-owned by prominent comic duo The Inspired Unemployed.

Carson pointed out that Mighty Craft also owns some licenced venues but it could potentially sell these off to fund the growing alcohol business.

And at the current market cap below the value of Better Beer label by itself, buying the stock means investors acquire all the other assets for free anyway.

"We think it's a very very interesting opportunity."

'Incredibly cheap' with proven performance

Carson presented Silk Logistics Holdings Ltd (ASX: SLH) as a torch bearer for Cyan's cash-generative portfolio.

"It's at $2.30 but it listed July 2021 at $2. So it's performed pretty well in a difficult market," he said.

"We think it's [still] incredibly cheap."

The company provides port and contract logistics services in Australia for many big-name clients.

"It's founder-led and managed, and they own a large chunk of the equity — and are heavily incentivised to continue the growth there."

The stock is trading at a single-digit price-to-earnings ratio all while paying out a 5% dividend yield including franking.

The performance is there in black-and-white. 

In its listing prospectus, the 2022 financial year revenue forecast was $339.4 million. Just a year later, the actual revenue turned out to be $394.7 million.

"We value it at $4.20 on a two-year view, which is 85% upside."

The Silk Logistics share price is already up 8.9% so far this year.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Silk Logistics. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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