ASX small cap stocks are taking more of a beating today than their larger counterparts, but don't be fooled into thinking there aren't any compelling buys at the small end of town.
The S&P/ASX SMALL ORDINARIES (Index: ^AXSO) tumbled 1.4% while the S&P/ASX 200 Index (Index:^AXJO) shed 0.7% in late afternoon trade.
But the underperformance of the market minnows needs to be taken into context. They have outperformed the large caps in recent months, so the pullback isn't alarming.
If anything, it could prove to be a buying opportunity, particularly for three emerging stocks that leading brokers have just slapped a "buy" on.
Conviction buy
The Charter Hall Social Infrastructure REIT (ASX: CQE) share price is one to watch after Goldman Sachs reaffirmed its conviction "buy" recommendation on the stock.
The childcare property trust is substantially under priced despite the government withdrawing free childcare support and the second COVID-19 lockdown in key parts of Victoria.
"On GS estimates, the market expects 19% devaluation of CQE's portfolio or an implied cap rate of 7.6% (vs. 6.1% book), which we see as overly bearish given continued government funding, exposure to high-quality operators with limited exposure to Victoria," said the broker.
Add in a strong balance sheet and the improving outlook for the sector, and you can see why Goldman is so bullish on the Charter Hall Social share price.
The broker's 12-month price target on CQE is $3.16 a share, which implies a circa 40% upside for the stock.
Gaining traction
Meanwhile, JP Morgan reiterated its "overweight" recommendation on the Tyro Payments Ltd (ASX: TYR) share price.
The bullish call comes on the back of a positive trading update from the fintech for the week ended July 10. Transaction value jumped 14% over the same period last year on a same day basis.
"Although this represents only a week of data into FY21, we like the positive trend in TYR's comps," said JP Morgan.
"However, near-term we expect the comps may be weighed down by the lockdown in Melbourne and the real risk of a second wave of COVID-19 cases."
The broker's 12-month price target on Tyro is $4.15 a share.
Good premium
Another small cap to watch is the Steadfast Group Ltd (ASX: SDF) share price. Macquarie Group Ltd (ASX: MQG) reiterated its "outperform" call on the insurance broker as insurance premiums continue to grow despite cycling three-years of positive comparables.
"Premium rate increases in 4Q20 have not moderated, with Property class increases offsetting more modest Motor class rate increases," explained Macquarie.
"Policy cancellations, refunds and premium deferral, as policyholders and underwriters respond to COVID-19 economic impacts, do not appear to have been material and have not impacted the data series in the June qtr."
The broker's 12-month price target on Steadfast is $3.70 a share.
