'High cash conversion': 2 ASX shares to buy before they rocket even more

Here's a pair of stocks not often heard of but are currently rallying with strong momentum.

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Unfortunately last month likely disappointed many investors who were counting on a massive Santa rally to soften the impact of a pretty terrible 2022.

The S&P/ASX 200 Index (ASX: XJO) plunged 3.4% over December, with many contituent shares ending up in the red.

But one fund found a couple of bright sparks in its portfolio that reckon will continue their upward trajectory.

'Attractive dividend yield'

Salary packaging provider Smartgroup Corporation Ltd (ASX: SIQ) is not a name mentioned often, but the analysts at Celeste Funds Management are big fans.

The stock provided a handsome 6.5% return last month for the team, which it attributed to "recovering from oversold levels in November post a weaker than expected earnings update".

"The company noted that while they had experienced positive momentum with respect to novated leasing leads, a continued lack of new car supply into Australia saw further delays in settlement volumes," read a Celeste memo to clients.

Despite the late-year rally, Smartgroup shares remain heavily discounted, trading at 29% lower than a year ago.

The big clincher for Celeste analysts is the mouth-watering 6.8% dividend yield.

"Regardless of the level of earnings, Smartgroup is a high cash conversion business, which it returns to shareholders via dividends," read the memo.

"As such, the current share price is underwritten by an attractive dividend yield in our view."

According to CMC Markets, four out of seven analysts are rating Smartgroup shares as a strong buy, while the other three reckon it's a hold.

Expansion potential for insurer

Health insurer NIB Holdings Limited (ASX: NHF) also contributed nicely to the Celeste portfolio, rising 6.2% in December.

The team is excited about the growth potential in the business's $158 million equity raise in November to pay for the NDIS industry player Maple Plan.

But the Christmas rally was based on the excitement around other parts of NIB.

"The market refocused its attention on the underlying strength of the Australian residents health insurance division, with earnings growth across the group to be enhanced by a continued recovery in its travel insurance and international inbound health insurance divisions."

The NIB share price has risen 8.4% over the past 12 months, while paying out a 2.9% dividend yield.

The Celeste team's enthusiasm for NIB is not quite matched by its peers though.

Out of the 12 analysts currently surveyed on CMC Markets, a whopping nine of them rate NIB shares as merely a hold.

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 positions in and has recommended Smartgroup. The Motley Fool Australia has recommended NIB Holdings. 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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