Yesterday we looked at a number of small cap ASX stocks that Bell Potter is recommending as buys when interest rates.
It believes that the underperformance of small caps in recent years leaves many trading at attractive levels. And with interest rates now heading lower, it feels that the tide is turning for the small side of the market. As a reminder, it said:
Small caps are well-placed to outperform over the next year. Small caps have underperformed their large cap counterparts since the end of 2021. A rapid tightening cycle from central banks, a slowing economy and elevated risks of a hard landing have all been headwinds for small caps in Australia and globally.
The tide is turning for small caps as the headwinds experienced over the past three years begin to turn. In our view, this is an opportune time to rotate portfolios towards small caps due to a confluence of favourable factors.
Two more small caps that have been given the thumbs up are listed below. Here's why the broker is bullish on them:
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Smartgroup Corporation Ltd (ASX: SIQ)
The first small cap ASX stock that could be a buy according to the broker is fleet management and salary packaging company Smartgroup.
Bell Potter likes the company due to its defensive qualities, positive outlook, and cheap valuation. It explains:
SIQ is an industry-leading provider of employee benefits, end-to-end fleet management and software solutions with over 400,000 salary packages and 64,000 novated leases under management. SIQ looks well priced given a fwd P/E of ~14.5x, a defensive client base, earnings tailwinds from the Electric Car Discount Bill (exempts low or zero emission vehicles from Fringe Benefits Tax), an ROE of ~30% and a strong balance sheet.
The broker has a buy rating and $9.75 price target on its shares. This suggests that upside of 19% is possible from current levels.
SRG Global Ltd (ASX: SRG)
Bell Potter thinks this diversified industrial services company could be a great option for investors.
It highlights that the small cap ASX stock has a strong growth potential but trades on lower than average earnings multiples. It said:
SRG's short-to-medium term outlook is reinforced by Government-stimulated construction activity in the infrastructure and non-residential sectors, and increased development and sustained capital expenditures in the resources industry. SRG is expected to generate double digit earnings growth (11% p.a. over (FY25-27)) on a 12 mth fwd P/E of ~12x.
Bell Potter has a buy rating and $1.40 price target on its shares. This implies potential upside of 33% over the next 12 months.
