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.

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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.

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