In the share market past performance is no guide to future returns as the disclaimer goes. However, it can often be instructive.
While on a risk-adjusted basis mid-cap or growth-style shares are often the best bet for growth.
This is because mid-cap companies are normally profitable, but still small enough to double in value reasonably quickly if you get some luck with your timing.
Often mid-cap businesses that grow earnings strongly also get re-rated with a higher earnings multiple by professional investors to reflect the fact that their anticipated growth rates are now stronger.
The twin tailwinds of earnings growth and a multiple re-rating can combine to produce powerful share price rises. A lot of the companies listed below have enjoyed this effect over the course of 2019.
Source: Commsec as at Nov 15, 2019.
Let’s take a brief look at these businesses.
Avita Medical Ltd (ASX: AVH) is up a whopping 628% over 2019 but posted a $33 million loss over fiscal 2019. Yesterday it got added to the benchmark S&P/ ASX200 (ASX: XJO) index to mean index tracking funds will buy shares regardless of valuation. It also recently raised $120 million to fund its growth plans.
Z1P Co. Ltd (ASX: Z1P) is the buy-now-pay-later player posting strong growth in retailer and customer numbers. Given its opportunity to expand horizontally it could be one for the watch list.
Polynovo Ltd (ASX: PNV) also joined the S&P/ ASX200 in September 2019 in a move that has helped its shares climb 268% over 2019. The biotech player posted a loss of $3.2 million on revenue of just $13.7 million over fiscal 2019.
Jumbo Interactive Ltd (ASX: JIN) is the online lotto business that also joined the S&P/ ASX200 in September 2019. It posted a $26.4 million profit in on revenue of $65 million FY 2019. It looks worth some research.
EML Payments Ltd (ASX: EML) recently announced a scrip-funded $423 million acquisition of Irish fintech player Prepaid Financial Services. The group estimates the deal will be mid-teen EPSA accretive before cost savings extracted. EML is another business to watch although an acquisition this size brings a lot of risk.
Nanosonics Ltd (ASX: NAN) is the ultrasound disinfectant business that has enjoyed a strong year on the back of a new flagship product launch. The medical device business has a big global opportunity and is one to watch.
Dicker Data Ltd (ASX: DDR) is the IT hardware distribution business that is growing profits thanks to market share gains. It also has a tailwind as demand grows amongst enterprise customers for more IT hardware over time. The valuation looks reasonable and it also pays healthy quarterly fully franked dividends. It’s a good example of a business that has enjoyed an earnings multiple re-rating on the back of strong profit growth.
Megaport Ltd (ASX: MP1) is the enterprise-facing adjustable internet connectivity and data centre service business catching a bid from institutional investors. It posted a $33 million loss in FY 2019 but it’s potential to leverage the growth of the digital economy is impressing some investors.
Pro Medicus Limited (ASX: PME) is the software-as-a-service medical imaging business that has returned 136% year to date, but has actually fallen around 30% in value since September 2019. It boasts high profit margins, attractive economics and a market-leading product straddling the lucrative sectors of tech and healthcare.
Austal Ltd (ASX: ASB) is the commercial shipbuilder that has won a couple of lucrative contracts off the U.S. navy over the past year. As a result it’s forecasting more strong profit growth in FY 2020.
The post These are the 10 best mid-cap shares of 2019 appeared first on Motley Fool Australia.
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Tom Richardson owns shares of Dicker Data Limited and Pro Medicus Ltd.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited and Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited, MEGAPORT FPO, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Nanosonics Limited. The Motley Fool Australia has recommended Emerchants Limited, Jumbo Interactive Limited, MEGAPORT FPO, and Pro Medicus Ltd. 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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