MENU

These 2 small cap shares could outperform on broker upgrades

Don’t let today’s market weakness get you down. I expect our market to push higher in the short-term and the share price action of stocks in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) over the past few days is adding to my confidence.

This assumes that nothing out of left field comes out to hit us and that includes the verbose US President Donald Trump!

If you are looking for some ideas on stocks that could outperform in the near-term, there are two small cap stocks that could take pole position in any rally after they got upgraded by brokers yesterday.

The first is Appen Ltd (ASX: APX). Bell Potter has upgraded the machine learning and artificial intelligence tech company to a “buy” from “neutral” following the 17% pullback in its share price since the end of February.

But that isn’t the only reason to be excited about the stock. The broker thinks there’s a good chance management will either narrow its profit forecast at the top end of its guidance or upgrade its earnings guidance.

This is due to the favourable exchange rate as management had assumed the Australian dollar would hover at US80 cents.

However, the average AUD/USD rate since the start of this calendar year is US78 cents and experts think the risk is for further weakness in the Aussie due to the widening interest rate differential between the two countries.

“We also note the AGM is next month on the 18th and historically the company has provided an update on the guidance at or around this time,” said Bell Potter, who has an $11.00 per share price target on Appen.

“We expect Appen to at least reiterate its 2018 guidance next month and see some chance of narrowing the range towards the higher end or even an upgrade.”

The outlook for novated leasing and fleet management group Smartgroup Corporation Ltd (ASX: SIQ) has also gotten brighter with Ord Minnett upgrading the stock to “buy” following its $78.4 million capital raising.

“The outlook for SIQ appears good, with a combination of organic and (not modelled) acquired growth likely to see EPS growth remain double digit over the medium term,” said Ord Minnett.

“We are attracted to the SIQ business model as it is largely a ‘clip the ticket’ model, taking no residual vehicle risk, resulting in strong cash conversion.”

The broker has a $11.55 share price target on the stock.

But these aren’t the only hot stocks to own for 2018 as the experts at the Motley Fool have picked three emerging tech disruptors that are well placed to outperform.

Follow the link below to get your free report on these stocks and to find out why they should be on your watch list this year.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.