Risk appetite has come roaring back on Monday and these ASX small caps are outperforming as they are listed as the latest broker buy ideas.
The S&P/ASX SMALL ORDINARIES (Index: ^AXSO) and S&P/ASX 200 Index (Index:^AXJO) rallied around 2.4% each at the close.
If the rebound is sustained, ASX small caps could pull ahead as these higher risk propositions tend to perform better when fear turns to greed.
ASX small cap that’s ripe for the picking
There are two on the Small Ordinaries that stand out today. The first is the Costa Group Holdings Ltd (ASX: CGC) share price, which gained 3.3% to $3.47 today.
UBS reiterated its “buy” recommendation on the fruit and mushroom grower after it noted wholesale prices for most of its key products have improved.
Sweet outlook puts Costa on “buy” list
“Overall, wholesale trends through 3QCY20 were strong with prices (ex-Blueberries) up 19-34% y/y, accelerating vs. 2QCY20,” said UBS.
“Mushrooms have been particularly strong, with progressive improvement since July despite additional capacity.
“While the Blueberry category was weak during Jul/Aug, a significant improvement during Sep-20 resulted in ~flat y/y prices during 3Q.”
The other worry about the lack of pickers during COVID-19 travel restrictions. But the broker believes this isn’t an issue, in part due to Costa’s geographically diverse operations.
UBS’ 12-month price target on Costa is $3.55 a share.
Fallen far enough
Meanwhile, the Integrated Research Limited (ASX: IRI) share price surged 4.4% to $3.60 after Bell Potter upgraded the stock.
The big drop in the share price of the IT services group since the August reporting season meant there is a 20% upside including dividends.
The broker is forecasting earnings per share growth of 10% for the current financial year, 11% for FY22 and 15% for FY23.
Double-digit earnings growth
“The lower forecast growth in FY21 is due to the release of new SaaS and hybrid products this half which are only expected to start contributing in 2HFY21,” said the broker.
“There is, however, a lack of short term catalysts for the stock – at least which we can see – and we also only expect modest growth in 1HFY21 with the anticipated skew in earnings towards 2HFY21.
“But we do expect solid growth for the full year result which in our view supports the upgrade in recommendation.”
Bell Potter lifted its rating on the stock to “buy” from “hold” with a 12-month price target of $4.25 a share.
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Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Integrated Research Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. 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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