These types of companies often have stronger growth prospects than well established blue-chip shares.

While ASX small-caps can experience heightened volatility, here are two that have drawn attention from experts recently. 

The Environmental Group Ltd (ASX: EGL)

The Environmental Group engages in designing, application and servicing of gas and vapour emission control systems, inlet and exhaust systems for gas turbines, water purification and engineering services. 

It operates through the following three segments: Products, Services and the Corporate segment.

Yesterday, the company released 1H FY26 results which included: 

• Revenue up 8.6% on prior comparable period
• Underlying EBITDA up 25.9% on pcp
• Gross profit up 21.7% from pcp. 

Investors were clearly disappointed with the result, as the share price tumbled 15.69% following the release. 

Following the results, the team at Bell Potter issued updated its guidance on this ASX small-cap. 

It seems that after yesterday's sell-off, the small-cap could be undervalued. 

The broker reiterated its buy recommendation, but slightly lowered its price target to $0.350. 

From yesterday's closing price of $0.22, this still indicates an upside of 59%. 

The broker said:

Although EGL's first half was below expectations, we remain confident in its outlook. We believe EGL will reap the benefits of its growth initiatives which created temporary inefficiencies during the half. EGL's growing recurring and diversified revenue stream drives a forecasted EPS CAGR of +19% over the next 3 years. We retain our Buy recommendation.

Meeka Metals Ltd (ASX: MEK)

Meeka Metals is another ASX small-cap stock that has been drawing positive attention from brokers. 

It is a gold and rare earths company with a portfolio of high-quality 100% owned projects across Western Australia.

It has risen 60% over the past year, however it has slumped 20% since the start of 2026. 

This ASX small-cap also closed trading yesterday at $0.22. 

However a recent share price target from Morgans indicates it is well below fair value. 

The broker has a buy rating and price target of $0.33 on this ASX small-cap stock. 

That indicates an upside of 50%. 

The confidence out of the broker is on the back of recent earnings results from the gold miner. 

The broker said:

MEK delivered its 2Q26 operating result as the Murchison Gold Project continues to ramp up. Gold production increased 28% quarter on quarter to 9.1koz Au and was in-line with MorgansF of 9.3koz Au. Ounce production was underpinned by a mill head grade of 3.3g/t Au, ~10% above MorgansF assumptions; however, this grade outperformance is partially offsetting lower-than-expected throughput.

The post 2 ASX small-caps that could soar according to brokers appeared first on The Motley Fool Australia.

But with inflation cooling and the prospect of rate cuts coming, the little guys are starting to play catch up to the medium and large caps.

Here are three ASX "penny stocks" that I think could break out above the 80 cent barrier in the future:

'More cleanup to be done in Australia' than anyone can handle

The first two stocks are both related to improving the environment, which is why I think they have a bright future.

Certainly in recent years nations around the world have become more conscious of damage to the planet, and both these companies provide solutions.

Environmental Group Ltd (ASX: EGL) is best described as an engineering firm that provides technologies to combat air pollution, water pollution, and produce energy from biowaste.

A couple of years back, Marcus Today founder Marcus Padley attested that landing work would be no trouble for Environmental Group.

"There is more cleanup to be done in Australia that EGL could possibly handle," he said.

"This is just a question of getting around the technology. It's not a question of finding things to do."

Both Bell Potter and Taylor Collison rate EGL shares as a strong buy currently, according to CMC Invest.

The analysts love these ASX penny stocks

Close The Loop Ltd (ASX: CLG) provides take-back and recycling solutions that enable a circular economy.

Ink and toner cartridges are a major program, with batteries, cosmetics and soft plastics in its remit.

CMC Invest shows both Shaw & Partners and Unified Capital Partners rating the stock as a strong buy.

The Motley Fool's Tristan Harrison named it as one of the small caps he is intrigued by, as it is "growing revenue, improving margins and [has] appealing growth potential".

"I think quality smaller companies are capable of outperforming bigger businesses over the long term because their growth runways are longer."

Meanwhile, Mach7 Technologies Ltd (ASX: M7T) creates management systems for medical images in hospitals.

All five analysts surveyed on CMC Invest are rating the healthtech stock as a buy, so it must be heading in the right direction.

Contract wins from big hospitals will be the catalyst for Mach7 shares to break through the 80 cent mark in the future.

The post 3 ASX penny stocks I don't think will be below 80 cents much longer appeared first on The Motley Fool Australia.

If you are, then it could be worth taking a look at the two small caps listed below that Bell Potter rates as buys for the year ahead.

Here's what the broker is saying about these small caps:

Aeris Resources Ltd (ASX: AIS)

Bell Potter sees a lot of value in this copper miner's shares after a very disappointing year. Particularly given how a recent capital raising has de-risked its balance sheet. It explains:

AIS represents a copper dominant mining exposure whose primary assets are the Tritton Copper Operations in NSW, Cracow Gold Mine in QLD, Mt Colin Copper Mine in QLD. Its near-term outlook is highly leveraged to rising copper grades at the Tritton copper mine, where new high grade ore sources are growing production in FY24. Exploration success at Constellation is likely to sustain higher production levels over the long term. The Cracow gold mine in QLD is running to plan and offers an unhedged gold exposure that is highly leveraged to a rising gold price. Recent refinancings have de-risked the balance sheet and we are of the view that AIS is well positioned to deliver on its production targets.

Bell Potter has a buy rating and 23 cents price target on this small-cap ASX share. This implies a potential upside of 76% over the next 12 months.

Environmental Group Ltd (ASX: EGL)

Another small-cap ASX share that Bell Potter rates as a buy for the year ahead is Environmental Group.

It is an environmental engineering company that is committed to the protection of the environment by improving air quality, reducing carbon emissions, enhancing waste to energy production, and lifting water quality.

Bell Potter believes that the company is in a strong position for growth in FY 2024 and beyond. It explains:

EGL operates five core segments that are all profitable, growing >15% p.a. and exposed to favourable environmental growth trends (e.g. landfill diversion, PFAS water treatment, battery minerals development). EGL is guiding for >30% EBITDA growth in FY24e, however we think this represents more of a starting point than an end point. The Baltec business in particular is in a clear upgrade cycle, while we expect a potentially news flow rich 2024 in Waste and Clean Air with a material portion of the group's project proposals subject to near-term decisions. Broader industry validation through potential sales of the PFAS solution also remains a key area of upside.

The broker has a buy rating and 34 cents price target on its shares. This suggests a potential upside of 31% over the next 12 months.

The post Broker says these small-cap ASX shares are buys with big return potential in 2024 appeared first on The Motley Fool Australia.

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Capital H Management portfolio manager Harley Grosser tells us the two hottest small-cap ASX shares to buy right now.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Harley Grosser: Our team manages the Capital H Inception Fund, which is a value-focused, bottom-up stock picker specialising in small and microcap ASX-listed stocks. 

What we try to do is find situations where the upside is large and the downside's relatively small. It tends to be in the smaller companies where you can find those, so that's where we focus. 

The final one is we only buy businesses that we think we understand and at prices that we think are well below what we think they're worth.

MF: The last 12 months for small caps haven't been great. Where do you think the market is now and where do you think it's heading?

HG: My honest answer on where the market's going is that I don't know, and we don't spend much time trying to figure that out. 

As you mentioned, it has been a difficult market for small caps. So what we do know is there's a whole lot more value in Aussie small caps now than there was 12 months ago. We've been pretty much buying some stocks every day for the last six months or so. We spend our time just sifting through everything and trying to find one or two good ideas a year, really. 

Over the really long term, markets will move higher but in the short term, they can do anything. So we just try to block out the noise and focus on finding good opportunities.

MF: Would it be fair to say you buy stocks with a reasonable investment horizon?

HG: Yeah, we want to be invested in the business as long as the company's executing and the valuation stays reasonable. So the longer that is, the better. When we're buying a stock, we're buying it on what we think is [its] earnings in 12 or 18 months, not what it's earning today or yesterday. 

We're happy to take advantage of the short-term ups and downs, but we try to take a long-term focus on the actual investment.

Hottest ASX shares

MF: What are the two best stock buys right now?

HG: One is Environmental Group Ltd (ASX: EGL), which we've been in for a while. It's a provider of integrated waste management and environmental solutions. 

They've had a really good 12 months at an operational level but as you mentioned, most small-cap stocks are down. So they've upgraded a few times over the last year through FY22, and we think there's good prospects of earnings momentum continuing into FY24, given their deal pipeline. 

It's a really well-run business. It's run by someone who the market knows well, and it's in the right space with billions of dollars going to be spent on waste and environmental solutions in coming years, regardless of inflation, or recession risk, or base collapsing. It's a little bit recession-proof there. 

What we think will get the market excited in the new term is their opportunity in PFAS [chemical pollutants], which looks like it's starting to come together. So I think it's probably just one that investors should keep an eye on because we think it's close to an inflection point, potentially.

MF: These small caps, they can go down a fair magnitude, but when the market picks up again, they go up significantly compared to the larger stocks, don't they?

HG: For sure. And when they do go up, they go up very quickly, and often on relatively low volume. So it's hard to buy them when they're moving. You've got to take a view, get set, and hope your work proves you're correct. 

We're not trying to be too smart and trade each year around the edges. We just held the position, and if the stock goes nuts, we'll of course manage the position and sell what we need to, but it's a long-term hold for us. And the management's executing, so we can't really fault them.

MF: Great, and your other ASX share to buy?

HG: Final one is Sequoia Financial Group Ltd (ASX: SEQ). They're a financial services group. They've just announced they've agreed to sell 80% of one of their businesses for $40 million of cash. 

The stock's trading on a silly valuation of three times EV [enterprise value] to EBIT [earnings before interest and tax]. The catch there is that the market doesn't yet fully believe the sale will complete, at least based on what the share price is. 

But the buyer is coming out saying publicly that they've got the funding, so we just got to wait and see.

We think it's an investment with relatively little downside. If the deal doesn't complete, we don't lose much. If it does complete, then it looks really, really cheap. We'll probably make a good return. 

The first key date there would be the 20th of March for investors to watch. Pencil that date in because that's when the first payment of about $10 million comes in. And we think as each payment comes in, there's three payments totalling $40 million, then the stock will re-rate. 

It's not without risk there. The deal might not complete, but we think it's a reasonable chance it does and the stock looks cheap on that basis.

MF: That's a pretty huge transaction for a company with a current market cap of only $72 million.

HG: Oh, massive. I mean if it does complete, they've got $45 million of cash, they'll still be doing say $8,  $9 million of operating EBITDA a year. 

I think the market was shocked, in a good way, by what price they got for Morrison's. But because the structure of the deal is cash payments over a relatively long time, the market's not going to price it in until the cash's actually in the account, which is fair enough.

The post This $70 million ASX company just pulled off a $40 million deal: fundie appeared first on The Motley Fool Australia.

Having a variety of different ASX shares spreads out risk and helps you sleep at night, experts say.

However, it might surprise you to know those same professional investors don't necessarily practise diversification themselves.

In fact, many will use their in-depth knowledge to put all their eggs in one or two ASX shares that they're absolutely certain of winning on. 

Call it conviction, call it guts, call it what you will. 

But the writer has spoken to many fund managers who do this for their personal portfolios, which is completely the opposite of what they advise clients on how they run their fund.

Very few are willing to reveal this publicly though, for fear of burning vulnerable retail investors.

Turning $156,000 into $12 million

One expert who is quite happy to go on the record is Marcus Today founder Marcus Padley.

Padley has claimed more than once that diversification is a false idol.

"In the remote wilderness of portfolio construction, we have a lot of gurus — but there is one religion: it's called diversification," he said in a podcast last year.

"It underperforms in the good times, outperforms in the bad times, but it still doesn't perform anyway."

The Motley Fool reported last year that one of Padley's followers had turned $156,000 into $12 million in just 3 years by putting it all in one ASX share.

Many might think this is risky, but Padley reckons it's the opposite.

"It's actually less risky because you've got your head in the game and you've only got one stock to focus on after all," he said.

"If you were to buy one stock, you're going to watch every move. You'll go to every company presentation, get to know the CEO, get to know the other shareholders… You're going to watch the drivers and pick up on anything that's relevant to that stock."

Practising what he preaches

To put his money where his mouth is, in a recent podcast Padley revealed that he himself only owns 2 ASX shares.

One of them is Poseidon Nickel Ltd (ASX: POS), which he has held for "a long time".

"The CEO is godfather to one of my daughters, hence the faith in the man, who I know really well."

That chief executive, Peter J Harold, has a track record of turning exploration businesses into producers, and Padley believes Poseidon would follow.

"Poseidon is sitting on a couple of projects that used to produce. It's just a question of the nickel price rising high enough to make those viable," he said.

"They expect to be back in production by December this year."

The Poseidon share price has sunk more than 23% this year.

The second and final stock in Padley's personal portfolio is Environmental Group Ltd (ASX: EGL).

Padley became interested in this environmental services provider when a trio of former Tox Free executives joined the firm.

"There is more cleanup to be done in Australia that EGL could possibly handle," he said.

"This is just a question of getting around the technology. It's not a question of finding things to do."

Capital H Management founder and chief executive Harley Grosser told The Motley Fool earlier this month that he's also a fan of EGL.

"The management team is A grade," he said.

"They've done it before at Tox Free — a lot of the institutional fund managers know of [chief executive] Jason [Dixon] and his team, and the stock looks good value to us. So we'd expect it to do well this year."

The EGL share price is down almost 18% for the year so far.

The post I personally only own 2 ASX shares: fund manager appeared first on The Motley Fool Australia.

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Capital H Management founder and chief executive Harley Grosser reveals a pair of small-cap ASX shares his funds are loving at the moment.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Harley Grosser: Capital H is a small- and micro-cap specialist. We have two funds at Capital H, both of which are small-cap focused. 

Inception Fund is our flagship fund. The focus is on investing in undervalued quality growing companies with good quality management teams. And we take high-conviction positions in that fund and generated comfortably north of 30% per annum after fees now for the almost 4 years it's been running.

The active fund is our second fund. We started that in March of last year and the strategy there is to focus on finding companies that we can add value to i.e. being active in. So there's various ways we can do that, but generally, it's in a friendly activist style. That's our fund that we allocate any investment positions that we think we can be active in the company to add value for shareholders.

Biggest convictions

MF: What are your two biggest holdings?

HG: I thought I'd give you one of each — largest holding in each fund.

So Inception Fund's largest holding is Environmental Group Ltd (ASX: EGL). It's actually been listed on the ASX since the 1970s, so it's been around for a long time. 

We just think that its time has come. A bit of a cliche, but we think that's true.

So EGL's portfolio businesses are involved in, basically, protection of the environment — things like improving air quality, reducing carbon emissions and removing waste. So of those core businesses, we think they'll do around $4 million of EBIT this year, which we think is positive. 

It is a growing cash flow positive business, but what's most exciting for EGL is their PFAS removal technology. 

We actually got out to visit their plant in Melbourne earlier this year. They released their first order of trial results late last year in December, which the market viewed as very positive. And on the site visit, I think we were most impressed just by the simplicity of the technology, which we think improves their odds of successful commercialisation.

Then most importantly, the management team is A grade. They've done it before at Tox Free — a lot of the institutional fund managers know of [chief executive] Jason [Dixon] and his team, and the stock looks good value to us. So we'd expect it to do well this year.

MF: It was listed in the 1970s?

HG: It actually listed in 1977. It was founded, I think, in the 1920s.

It's funny how often that happens in micro caps though. Companies list a long time ago, then they reinvent themselves. They go nowhere then it's sort of their time. 

For a company that focuses on improving the quality of the environment in a number of different ways, it's pretty easy to see that now is kind of their time.

MF: And the biggest holding in the active fund?

HG: So the biggest position in the active fund is a company called ARC Funds Ltd (ASX: ARC). For this one, I do need to disclose I'm the managing director. We sit on the board.

So ARC Funds are a listed multi-affiliate boutique funds management group. So think like Pinnacle Investment Management Group Ltd (ASX: PNI), but a smaller version. 

We take equity stakes in emerging funds management talent, and then we provide them with the infrastructure, the services and the distribution that they need to succeed to build these successful growing profitable funds management businesses. 

We actually released on the ASX this morning an update that Magnum Funds, which our fixed income manager had secured $35 million of commitments for, it's soon to be launched [as an] active ETF. 

And our other manager, Merewether, launched their fund in November last year. [It] has raised about $5 million of funds and has performed very strongly over the last few months, which was a pretty rough few months for equity investors. 

We've got an exciting pipeline there of new managers and products — and we think it should be, if we do our job right, it should be a good year.

The post 2 ASX shares loved by expert who averages 30% return per year appeared first on The Motley Fool Australia.

So perhaps that can also apply to your ASX share portfolio. A time to consider companies you haven't before?

If you need some ideas about how to make your money work for you in 2022, one expert has named 2 ASX shares that he reckons could go ballistic.

At this time of the year, Capital H Management managing director Harley Grosser usually posts one stock that could rocket in the new year on Livewire — but not this time around.

"This year I thought I'd diversify a little and rather than place all my eggs in one basket, I'd give you 2 stocks that we think are genuine candidates to be multi-baggers in 2022, both of which we've been buying recently."

And they're tickers that are not necessarily household names on the ASX:

Merger shareholders are selling off for no good reason

Grosser first mentioned Webcentral Ltd (ASX: WCG) as a bolter in March. While the share price is actually down almost 25% since then, he's still unambiguously bullish on the digital services provider.

"Webcentral recently merged with 5G Networks and is now an integrated IT, hosting, data centre and managed services company, as well as the third-largest domain provider in Australia," Grosser said.

"The complexity of that merger now hides what is, in our view, the cheapest IT services company on the ASX."

He explained that while his team was supportive of the merger, many other shareholders were not.

"Based on the share register and broker data, most of the selling since then has been retail shareholders who previously owned 5G Networks and were issued Webcentral scrip," he said. 

"We think that selling is a significant opportunity."

Webcentral shares closed for Christmas at 40 cents apiece.

Grosser has declared for a while now that the Webcentral share price should hit $1. Despite a tough 2021, his view has not changed.

"We continue to believe this is the case and have been adding to our position as a result."

ASX share at heart of 'the most exciting investment thematic of our time'

Environmental Group Ltd (ASX: EGL) is faithful to its label, providing environmental solutions for industrial processes.

Grosser's colleague, portfolio manager Joshua Baker, explained that the company has 5 different businesses with one acting as the "core" moneymaker.

"The core business is profitable and growing with tailwinds," he posted on Livewire.

"Success in the new business units, now substantially de-risked due to the successful PFAS [perfluoroalkyl and polyfluoroalkyl substances] trial results, which would open new and potentially highly profitable growth opportunities over the longer term."

Environmental Group is a "high conviction investment" heading into 2022, said Grosser.

"EGL is a highly profitable, well managed and growing business that finds itself right in the heart of what is probably the most exciting investment thematic of our time in decarbonisation and green investing."

The post 2 potential multi-bagger ASX shares for 2022 appeared first on The Motley Fool Australia.

Below, we take a look at the results from the facility service and environmental solutions company's commercial water treatment trial that looks to be driving ASX investor interest.

What commercial water trial results were announced?

The Environmental Group share price is surging after the company reported positive results from its commercial PFAS water trial with Reclaim Waste.

PFAS, according to the release, stands for per- and poly-fluoroalkyl substances. The manmade chemicals "are very persistent in the environment and in the human body meaning they don't break down and can accumulate over time".

The trial, using the Environmental Group's foam fractionation technology, was conducted across a number of commercial waste streams and liquid waste types polluted with PFAS at different concentrations.

The company reported it had successfully separated and removed the PFAS to "below detection levels" in every high-volume, low concentrate trial. Additionally, it was able to separate and remove 99.4% of PFAS from its first processing run on the highest concentration trials.

Commenting on the trial results, the Environmental Group's CEO, Jason Dixon, said:

By running various waste streams at different concentrations it has given us great confidence that the technology has the ability to separate PFAS for destruction across a wide range of liquid waste types covering the majority of the market for PFAS removal.

The trial plant can treat some 50,000 litres per day. It's operating at Reclaim Waste's site in Victoria.

In other news that could be providing a tailwind for the Environmental Group share price today, the company announced it has received firm commitments to raise $4.75 million (before costs) through a share placement.

The Group expects to issue some 27.1 million shares at 17.5 cents per share "to advance commercialisation and support other business development opportunities".

Environmental Group share price snapshot

The Environmental Group share price has been a stellar performer this year, up 700% since 4 January. By comparison, the All Ordinaries Index (ASX: XAO) has gained 11% year-to-date.

Over the past month, shares in the Environmental Group have gained 41%.

The post Up 700% this year, what's sending the Environmental Group (ASX:EGL) share price 38% higher today? appeared first on The Motley Fool Australia.