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How I’d invest $10,000 into mid-caps today

Tristan Harrison

There are so many different shares on the market with different market capitalisations that it’s hard to know where to start.

The large caps of Australia have been good performers over the past two decades but they’re now at a point where I think there won’t be much growth because they have already reached the market share saturation point.

I think that the mid-cap space could be a much better place to find growth. These businesses are smaller and have much more growth potential, but they are large enough to be able to weather any economic headwinds that may hit the domestic economy:

MNF Group Ltd (ASX: MNF) – $4,000

MNF is a leading provider of voice over internet protocol (VoIP) services to governments and businesses alike such as Uber and Skype. The recent Singapore-based acquisition of SuperInternet allows MNF to leverage its expertise to a wide range of clients in Singapore and in time the South East Asian region.

The business continues to generate pleasing organic growth and the current share price may be underestimating how good that growth will be over the next two years. I’ve allocated the most money to this as it’s defensive, offers good growth and isn’t trading too expensively for that potential growth.

Japara Healthcare Ltd (ASX: JHC) – $2,000

There’s no denying that the ageing demographics of Australia will boost businesses that are exposed to that tailwind. Japara is one of the most aligned because it’s one of Australia’s largest aged care providers.

Almost every negative that could happen to Japara over the past couple of years has occurred. However, hopefully, it has seen through the last of the bad shocks and can focus on sustainably increasing occupancy and profit margins.

Japara is on track to add over 1,000 net new beds over the next few years, which will materially boost revenue and hopefully earnings per share (EPS).

InvoCare Limited (ASX: IVC) – $2,500

The ageing demographics sadly eventually leads to a rising death rate. The morbid projection is that death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. That is a wonderfully terrible long-term stat.

InvoCare is re-vamping many of its locations to cater for the changing and increasing demand for its services. It’s also acquiring businesses in regional areas to expand its geographical footprint and lock out competitors.

Collins Foods Ltd (ASX: CKF) – $1,500

Collins is a very large KFC franchisee business with many outlets in Australia and it’s also starting to expand into Europe with acquisitions. Collins has also just opened its first Taco Bell location in Queensland, this could become as big of an opportunity as KFC in time if Aussies take to tacos as much as fried chicken.

There’s nothing incredibly special about the business model. All Collins needs to do is acquire or open a certain number of outlets each year to boost earnings. However, that’s also why I’ve allocated the least amount of money – it’s not very likey to double in share price in the next couple of years.

Foolish takeaway

I like all four businesses and I’d be happy to own all four of them at the current price. I already own shares of InvoCare and Japara for the long-term growth potential.

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Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited and JAPARA DEF SET. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended Collins Foods Limited and InvoCare Limited. 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.