Brokers’ Picks: 7 Small-Cap and Mid-Cap Stocks Set for Growth

Key Highlights:

• Bank of Queensland's recent rebound sparks both optimism and caution.
• Perpetual's net inflows and asset management growth position it as a key player.
• Evolution Mining faces investor scrutiny despite robust production numbers.
• Flight Centre sees a sharp decline following underwhelming quarterly performance.
• Wisetech Global rallies after a leadership shakeup and strategic growth plans.
• Jumbo Interactive's stock performance signals resilience despite market challenges.
• REA Group benefits from price target hikes driven by the property market's recovery.

In a week that saw wild fluctuations across the ASX, investors were caught off guard as small and mid-cap stocks took center stage, driven by significant broker upgrades. Here’s a deep dive into seven stocks that have captured the market’s attention:

1. Bank of Queensland (ASX: BOQ): Rebound or Risk?

Market Cap: AU$4.39 billion
Stock Price: AU$6.65 (as of October 25, 2024)

Overview: BOQ recently posted a strong recovery, with a notable improvement in its Net Interest Margin (NIM) to 1.57% for the second half of FY24. This performance momentarily silenced critics and triggered a rise in the stock price. However, analysts are divided. While the market responded favorably, Citi and UBS maintain sell-equivalent ratings, warning of potential risks from cost-cutting pressures and the bank's attempts to pivot its business model. The key concern here is whether BOQ can maintain this momentum amid heightened operational challenges.

Key Takeaway: BOQ's rebound is promising, but risks remain. Its recovery is fragile, and investors should watch how the bank navigates future investments and operational costs.

2. Perpetual (ASX: PPT): A Quiet Giant Awakes

Market Cap: AU$2.34 billion
Stock Price: AU$20.44 (as of October 25, 2024)

Overview: Perpetual experienced a resurgence in FY25, with net inflows of AU$400 million boosting total Assets Under Management (AUM) to AU$223 billion. This marks a major turnaround after two consecutive quarters of outflows, earning the company upgrades from Citi and JP Morgan. The possible separation of its trustee and asset management divisions is being viewed as a move that could unlock hidden shareholder value. Institutional investors hold 38% of the company’s shares, signaling strong interest in its future growth.

Key Takeaway: With its asset management arm showing renewed strength, Perpetual is positioned for significant growth, and the proposed separation of business units could further enhance its value proposition.

3. Evolution Mining (ASX: EVN): Strong Output, but What’s the Price?

Market Cap: AU$10.49 billion
Stock Price: AU$5.275 (as of October 25, 2024)

Overview: Evolution Mining posted robust production results for the September quarter, driving significant year-to-date performance gains of +33.21%. However, brokers like Macquarie have voiced concerns about the stock being overvalued after its recent price run-up. Despite a 134% EBIT growth year-on-year, only 23% of this was converted into free cash flow, raising liquidity concerns. The company also carries AU$1.94 billion in debt, offset by AU$403.3 million in cash reserves, adding to its risk profile.

Key Takeaway: Evolution Mining has performed strongly, but its stock may be approaching a short-term plateau. Investors should be cautious about the stock’s overvaluation and its ability to convert profits into cash.

4. Flight Centre (ASX: FLT): Tumbling Travel Giant

Market Cap: AU$3.57 billion
Stock Price: AU$16.10 (as of October 25, 2024)

Overview: Flight Centre’s stock has taken a significant hit, with a 24% drop following a vague and underwhelming trading update. Brokers expressed concerns about the company's unclear performance metrics for the September quarter, leading to sharp price target cuts. While the company remains profitable, its post-pandemic recovery has been slow, and there is growing uncertainty about its long-term earnings potential.

Key Takeaway: Flight Centre faces a challenging road ahead, with brokers divided on whether the company can rebound. The travel sector remains volatile, and Flight Centre must provide clearer earnings guidance to regain investor confidence.

5. Wisetech Global (ASX: WTC): Flying High Again

Market Cap: AU$37.61 billion
Stock Price: AU$112.46 (as of October 25, 2024)

Overview: Wisetech Global surged 22% this week after its founder, Richard White, stepped down from the CEO role, transitioning to a consulting position. This leadership shift, along with continued growth in its logistics software business, has resulted in brokers like CLSA upgrading the stock to "Outperform." The company is seen as a leader in logistics technology, benefiting from the growing demand for AI and automation in supply chain management.

Key Takeaway: With strong growth drivers in place and leadership changes that appear to have been well-received, Wisetech is well-positioned for continued success in the logistics software space.

6. Jumbo Interactive (ASX: JIN): Resilience Amid Market Volatility

Market Cap: AU$793.85 million
Stock Price: AU$12.65 (as of October 25, 2024)

Overview: Jumbo Interactive has faced a 17% decline in its stock price over the past three months, largely due to market volatility. However, the company’s fundamentals remain solid, with a Return on Equity (ROE) of 38%, making it one of the more profitable players in the online lottery space. Citi’s recent upgrade to "Buy" is based on confidence in the company’s ability to expand its digital lottery platform, and its share buyback program underscores management’s confidence in long-term growth.

Key Takeaway: Despite short-term challenges, Jumbo Interactive’s strong fundamentals suggest it is well-positioned for a rebound as the online lottery market grows.

7. REA Group (ASX: REA): Propelled by Property Boom

Market Cap: AU$28.8 billion
Stock Price: AU$240.00 (as of October 25, 2024)

Overview: REA Group continues to thrive in the digital real estate market, benefitting from a recovering property market. Brokers like JP Morgan have raised their price targets, with a 26% increase, reflecting confidence in REA’s ability to sustain growth. The company’s dominance in digital property advertising, along with stabilizing interest rates, has made it a favorite among investors.

Key Takeaway: REA Group’s leadership in the online property sector, coupled with strong broker support, makes it one of the most promising stocks in the mid-cap space.

REA Group has seen significant price target upgrades this week, driven by expectations of sustained growth in the digital real estate sector. JP Morgan’s 26% price target hike to AU$240 reflects optimism surrounding the stabilization of interest rates and the recovery of the property market. As one analyst put it, "REA is positioned to lead the online property ecosystem for years to come." Investors are taking note, making REA a stock to watch closely.

With brokers recalibrating their outlooks and the ASX small and mid-cap landscape shifting by the week, the spotlight is firmly on these emerging players. As the market continues to evolve, savvy investors are left asking: Are these stocks set to soar or stumble? While the recent upgrades suggest optimism, only time will tell if these companies can turn their potential into performance. Keep a close watch on these rising stars as the market momentum builds — because in this fast-paced environment, every move counts.