2 ASX small-cap stocks this fund manager thinks are buys

Some of the most compelling investments to own could be ASX small-cap stocks that are undervalued by the market.

Fund manager Wilson Asset Management has outlined two businesses in the WAM Microcap Ltd (ASX: WMI) portfolio that could be good performers in the coming years.

WAM Microcap, a listed investment company (LIC), is looking for the “most exciting undervalued growth opportunities in the Australian micro-cap market”.

Let’s take a look at which small businesses WAM likes.

Stealth Group Holdings Ltd (ASX: SGI)

The fund manager described Stealth Group Holdings as a diversified, multi-channel distribution business that supplies industrial, hardware, safety and consumer products to trade and retail customers across Australia.

During November 2025, the Stealth Group Holdings share price increased sharply (up 60%) after the company announced the acquisition of Hardware & Building Traders (HBT), Australia’s largest privately-owned hardware and industrial buying group.

The acquisition significantly increased the ASX small-cap stock’s scale, expanding distribution points from 32 to more than 1,200 independent retail and trade stores in Australia, raising purchasing volume by approximately $700 million and adding around 490 suppliers in the ecosystem.

The company increased its FY28 targets to more than $500 million in sales and provided profit margin targets that imply up to $40 million in net profit after tax (NPAT). The fund manager believes these targets are “relatively conservative” in the context of the “significant synergy potential and the company’s ability to undertake further acquisitions over time, none of which are included in these targets”.

Wilson Asset Management concluded on the ASX small-cap stock:

Whilst the share price increased by more than 60% over the month as investors priced in stronger medium-term growth and returns from the enlarged platform, we continue to see substantial re-rating potential.

EML Payments Ltd (ASX: EML)

WAM described EML Payments as a global payments solutions company that powers business processes “seamlessly for growth and exceptional customer experiences”.

During the month, the EML Payments share price fell 11% after the company revealed operating trends that were weaker than expected at its annual general meeting (AGM).

The company’s FY26 first quarter update revealed a decline of underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of approximately 42% year over year, as well as a small decline in revenue. But, the company did reaffirm its full-year EBITDA guidance.

WAM noted that the update was interpreted by the market as a “weak” trading result, with soft top-line momentum.

Why does the fund manager like the ASX small-cap stock, considering these headwinds? WAM said:

Led by Chief Executive Officer Anthony Hynes, we continue to have confidence in his ability to execute on the turnaround and drive a re-rating of the share price.

The EML share price is now down around 30% in the past six months, making it a lot cheaper for interested investors.

The post 2 ASX small-cap stocks this fund manager thinks are buys appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Wam Microcap. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.