ASX mid-caps could be the place to find the best opportunities for 2020.
Mid-caps are large enough that they can be safer and more reliable than small cap start-ups, but they are small enough to have lots of growth potential.
Here are 10 that I've got my eye on:
Altium Limited (ASX: ALU)
What it is: Altium is an electronic PCB software business.
Why I think it's an opportunity in 2020 and beyond: Just today the software business has guided that it expects another year of impressive double digit revenue growth and a higher earnings before interest, tax, depreciation and amortisation (EBITDA) margin despite a slowdown with Octopart. It's predicting long-term growth until at least 2025 – this is the type of business that can create strong compound returns over time.
Bapcor Ltd (ASX: BAP)
What it is: It's the largest auto parts business in Australia and New Zealand.
Why I think it's an opportunity in 2020 and beyond: The company continues to generate pleasing same store sales growth and profit margin improvement at its important Burson chain, which actually produces pretty defensive earnings. It's growing its networks of Bursons, Autobarns and other wholesalers across the country. It's also expanding into truck parts. Plus, it's creating a foothold in Thailand for potential long-term growth in Asia. It's trading on quite a cheap price/earnings ratio for its growth.
Rural Funds Group (ASX: RFF)
What it is: It's a farmland real estate investment trust (REIT).
Why I think it's an opportunity in 2020 and beyond: The REIT has been under heavy pressure from overseas-based shorts who have been alleging numerous negative things about its true asset value and operations. The share price remains depressed, but management have defended against the allegations and the sale of the chicken farms for close to its stated balance sheet value gives me confidence that the current price and distribution yield of 6% is an attractive opportunity in this low interest world.
Bega Cheese Ltd (ASX: BGA)
What it is: Bega Cheese is a dairy business involved with producing cheese products and Vegemite for domestic consumers and exports, it's also involved with manufacturing dairy products for other businesses.
Why I think it's an opportunity in 2020 and beyond: The drought has significantly impacted the milk price, which has increased Bega's input costs. But it's very hard for Bega to pass on these costs because supermarkets don't like shoppers to see volatile prices. Droughts are cyclical, so I believe Bega will see a recovery over the next two to three years.
Tassal Group Ltd (ASX: TGR)
What it is: Tassal is Australia's largest fish business, it's involved with salmon and prawns.
Why I think it's an opportunity in 2020 and beyond: Since the start of August, the Tassal share price is down around 17%. But the fish business' operating earnings continue to grow each year. The prawn strategy is a good diversification strategy and makes its earnings safer in-case there's an issue with the salmon division. It has a solid and growing dividend as well.
Regis Healthcare Ltd (ASX: REG)
What it is: Regis is one of the largest aged care providers in Australia.
Why I think it's an opportunity in 2020 and beyond: The sector has gone through a really rough time over the past year or two. But, the long-term ageing population tailwinds remain and the aged care royal commission could cause many smaller players drop out of the industry, which could be acquisition opportunities for larger players like Regis.
Service Stream Limited (ASX: SSM)
What it is: Service Stream is involved in the design, construction and maintenance of various important infrastructure like telecommunications and utilities.
Why I think it's an opportunity in 2020 and beyond: Australia has a growing population and it's currently going through an infrastructure boom. Service Stream's earnings and dividends grow year after year. Despite that, Service Stream's share price has been falling since the start of August, it's down around 20%. 2020 could be a turnaround for the share price as investors realise the attractive growing earnings.
Costa Group Holdings Ltd (ASX: CGC)
What it is: It's the largest horticultural business in Australia.
Why I think it's an opportunity in 2020 and beyond: The drought and some farm-specific issues have smashed Costa's share price over the past year. These types of things take time to turn around, but the issues do seem either one-off or cyclical. By this time next year Costa could be through the worst of it. The best time to buy cyclical shares is at the bottom of the cycle.
Megaport Ltd (ASX: MP1)
What it is: It's involved in making connections to the cloud really simple for businesses and organisations.
Why I think it's an opportunity in 2020 and beyond: The rise of cloud computing is already a huge driving force for tech businesses. The 2020s is expected to see huge amounts of computer infrastructure go from local servers to cloud providers like Microsoft's Azure, Amazon's AWS Google Cloud. Megaport is aligned to this growth of the cloud, so it could be one to watch.
Webjet Limited (ASX: WEB)
What it is: It's a travel business that helps both consumers and businesses get a cheap price for their flights, hotels and so on.
Why I think it's an opportunity in 2020 and beyond: The travel business has seen its share price hurt by Thomas Cook's demise, but despite that its earnings excluding that continue to grow at an impressive organic double digit rate. It's expecting Webbeds to grow its profit margin substantially over the next few years, which could see profit grow even faster than revenue. I think it's trading cheaply for the expected growth over the next few years.
Foolish takeaway
I think all of these shares could beat the market over the next two years. For total returns I think Webjet could be the best performer by Christmas 2020 as investors see that Webjet's earnings can keep growing strongly. Rural Funds could be the best pick for income because of the short attacks.
