If you’re looking for strong returns over the next decade, then I think the mid cap space is a great place to look.

This is because there are a good number of companies at this side of the market which have the potential to grow materially in the coming years.

But which mid cap ASX shares should you buy? Three that I think are among the best on offer are listed below:

EML Payments Ltd (ASX: EML)

EML Payments is a payments company with a focus on digital gift cards and pre-paid cards. It provides its services to shopping centres, online betting companies, and salary packaging companies. EML had been growing at a very strong rate over the last few years prior to the pandemic. And while its growth this year will inevitably be stifled, I believe it is well-positioned to resume its growth once the crisis passes. Especially following the recent acquisition of Prepaid Financial Services. This allows EML to enter the emerging field of banking as a service (BaaS) and could be a key driver of growth in the coming years.

Electro Optic Systems (ASX: EOS)

Another mid cap share to look at is Electro Optic Systems. It is Australia’s largest aerospace company and the largest defence exporter in the Southern Hemisphere. I like the company due to its experienced team and the long-established partnerships it has with major global aerospace giants. Another big positive is its massive backlog of work. This alone should support solid earnings growth over the next few years and is likely to be bolstered by new contracts along the way.

Nanosonics Ltd (ASX: NAN)

A final mid cap share to consider buying is Nanosonics. As well as having strong growth potential thanks to its industry-leading trophon EPR disinfection system, the impending launch of several new infection control products targeting unmet needs could take its growth to the next level. Especially given the growing importance of infection control and the fact that these secretive products are understood to have similar market opportunities to the trophon EPR disinfection system.

More reading

• 4 ASX fintech shares to make you rich
• How much should you pay for earnings reliability from shares?
• 3 outstanding ASX growth shares to invest $3,000 into today
• Have $500 to invest? Then buy these 5 ASX 200 shares immediately
• Why Afterpay and cohorts could confirm the economy bottomed in April

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited and Nanosonics Limited. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Emerchants Limited and Nanosonics 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.

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Today, the S&P/ASX 200 Index (ASX: XJO) is again moving higher, up 1.1% at the time of writing to 5,835.8 points. It could be, that after weeks of flatlining, this ASX 200 bull market is now set to break the psychologically important 6,000-point barrier. If it succeeds in doing so, it will be for the first time since early March.

What an incredible run this has been too. Since 23 March, the ASX 200 has now rallied over 28%.

But one ASX fund manager isn’t too keen on piling into this ASX 200 bull market. On the contrary, Scott Haslem of Crestone Wealth Management is starting to see some stretched valuations in the market. This is something that doesn’t herald good times ahead.

According to reporting in today’s Australian Financial Review (AFR), Mr Haslem is ‘holding back’ from chasing this bull market for 2 reasons.

Confessions of a nervous ASX fundie

Firstly, he believes valuations are starting to get ahead of themselves.

“The rally is a rational response to the improving economic backdrop”, the AFR quotes Haslem as stating. “The issue is what price you want to pay for that rationality.”

Of course, the unprecedented monetary policy that governments around the world are executing, including both here and in the United States, makes it difficult to say that shares are overvalued per se. But a 30% rally in just over 2 months is definitely worth examining.

Secondly, Haslem is worried markets haven’t fully priced in the earnings hit that coronavirus is yet to unload on the ASX. Companies across the board have had to increase their costs dramatically in order to implement social distancing rules. This is almost certain to impact their profitability and, therefore, their share prices. 

“The likely persistence of social distancing – and rightly so – is likely to slow the revenue of these companies,” Haslem stated. “And then other behaviours are going to have to change to adjust to the new environment, and that’s going to add additional cost to doing business…” He went on to say “Boards and companies are going to have to be looking for multiple supply chains for each component, and that’s going to add to costs.”

Haslem is worried about companies getting hit with a ‘double whammy’. Not only are revenues likely to be subdued for some time among many ASX businesses, but these new costs are likely to be semi-permanent. These means a continuation of burning the earnings candle at both ends.

Should ASX investors be worried?

I think Mr Haslem makes some good points here. There’s no doubt now that this ASX 200 bull market is pricing in a strong and rapid recovery for our economy, as well as arguably for the global economy.

That leaves very little wiggle room on share pricing if things don’t pan out that way.

But does this mean we should sell out of all shares? No, not in my view anyway.

I think the best course of action an ASX investor can take today is to reassess their portfolio. Make sure it consists only of companies you have long-term faith in. Additionally, making sure there’s a significant cash position available to take advantage of any future market downturns is also important. This can provide you with peace of mind if another crash does come, as well as some firepower to take advantage of lower share prices.

More reading

• Why now could be a better time to buy the underperforming CSL share price
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• The next looming test for the ASX 200 bull market is just round the corner
• Why you shouldn’t fear an ASX share market crash
• Where will the Telstra share price be next year?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three that have just been given sell ratings are listed below.

Here’s why these brokers are bearish on them:

Ansell Limited (ASX: ANN)

According to a note out of Macquarie, its analysts have retained their underperform rating but lifted the price target on this health and safety products company’s shares to $30.40. Although the broker believes Ansell is well-positioned to benefit from increasing demand for personal protective equipment, it has concerns over capacity constraints. It doesn’t believe the market is factoring this into its current valuation and thus believes its shares are overvalued. The Ansell share price is trading at $34.47 this afternoon.

Blackmores Limited (ASX: BKL)

A note out of Credit Suisse reveals that its analysts have retained their underperform rating but lifted their price target on this health supplements company’s shares to $65.00. The broker appears to support the company’s decision to strengthen its balance sheet. It also notes that Blackmores has reaffirmed its profit guidance for FY 2020. However, this isn’t enough for a change in rating. The broker retains its underperform rating on valuation grounds. The Blackmores share price is up 1.5% to $80.10 on Thursday.

Sonic Healthcare Limited (ASX: SHL)

Analysts at UBS have retained their sell rating but lifted their price target on this healthcare company’s shares to $25.10. The broker has been analysing pandemic testing data and believes that testing rates have already peaked in Australia. It also notes that testing rates have flattened in the UK and growth expected to slow in the United States. This could mean Sonic doesn’t benefit as greatly as the market was expecting from testing activities. The Sonic share price is trading at $29.15 this afternoon

More reading

• Why ANZ, Blackmores, IDP Education, & Nearmap shares are racing higher
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• Why the Blackmores share price is charging higher today
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 edges down, bank share prices fly

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia has recommended Ansell Ltd. and Sonic Healthcare 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.

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Despite a tsunami in taxpayer-funded stimulus measures to combat the coronavirus, Australia’s economic recovery is shaping up to be more of a protracted affair than a 45 degree angle snap-back. While interest rates, at close to zero, support the likelihood of a sharper V-shaped economic recovery – don’t hold your breath.

But the good news is that the recovery we’re most likely to experience will look less like a U or W-shaped recovery, and more like the Nike ‘swoosh’. The swoosh is akin to a Goldilocks-type bounce-back – not too hot, yet not too cold. A swoosh-shaped recovery bodes well for these 3 ASX 200 shares that remain seriously oversold since the beginning of the year.

McMillan Shakespeare Limited (ASX: MMS)

A decline in underlying net profit of 21.7% at half-year, plus challenging market conditions, compounded by the coronavirus, have seen the McMillan Shakespeare share price tumble to $9.03. That’s 42% lower than the $15.70 it was trading at in late November.

The professional services firm is a market leader in novated leasing, asset management and related financial products and services. But with so much of the workforce currently receiving the government’s Jobkeeper wage subsidy, it isn’t a great time to be offering these types of services. However, during its COVID-19 update on 8 April, the company expected to see its salary packaging activity go higher on the back of state governments increasing the size of the health workforces.

While the company has withdrawn earnings guidance for FY20 in light of the COVID-19 shutdown, the current MacMillan share price represents a 17% discount to Morningstar’s fair valuation of $10.18. Based on a P/E ratio of 12 (at the time of writing), the stock is trading on a discount to its sector peers (14.5) and the overall market at around 15.9.

As with all stocks right now, lack of clarity coming out of the pandemic is a little unnerving. But with McMillan’s net debt at around 42% of its market cap, the company’s balance sheet looks well positioned to emerge from the downturn ready to capitalise on new opportunities.

Southern Cross Media Group Ltd (ASX: SXL)

The Southern Cross Media share price declined 9.4% last week, but the media company (formerly Macquarie Media Group) – which is responsible for brands including 2Day FM, Triple M and the Hit Network – is already up 66% this week to $0.25 (at the time of writing).

This is great news for shareholders who recently witnessed a 244% increase in Southern Cross’ existing shares on issue. This was following a $169 million equity raising early May, issued at a whopping 45.5% discount. The company has also renegotiated its bank loans and plans to draw an extra $57 million from its existing debt facilities.

The expanded war chest will be kept on its balance sheet to improve liquidity, and reduce its net debt position. At the end of 2019, the company had just $22.5 million in cash on hand and $353 million in drawn down debt. With current liabilities ($81 million) equal to 6% of its total assets, the company looks well positioned to trade through the crisis and rebound during the recovery. The fundamentals of the company’s business remain sound, and the consensus recommendation on the stock is a strong buy, with Morningstar putting fair value at around $0.34.

AP Eagers (ASX: APE)

Dragged lower by the coronavirus mass sell-down, which accentuated the slowdown in car sales, the AP Eagers share price is trading around 24% lower than its pre-COVID-19 price of $9.01.

The auto dealership group’s growth-by-acquisition strategy over the past 20 years has been impressive. Since then, it has boosted sales revenue from $500 million to $5.8 billion. Assuming April marks the low-point – with sales down 48.5% on the previous April – an upswing in car sales could mirror the recent boom in Australia’s home improvement market. What will help the company capitalise on the market’s recovery is the underlying strength of its balance sheet, which includes $270 million in cash, and undrawn corporate debt facilities.

Together with a further $122 million OEM working capital, AP Eagers has available liquidity of $392 million. The consensus recommendation on the stock is a moderate buy, and at $6.81 it is currently trading at a 26% discount to Morningstar’s fair value of $9.24.

More reading

• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
• The one sector that could experience a V-shape COVID-19 recovery
• ASX 200 Weekly Wrap: ASX rallies on mining highs
• These were the worst performing ASX 200 shares last week
• Can we value ASX shares with P/E ratios in 2020?

Motley Fool contributor Mark Story has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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In the afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to record a strong gain. At the time of writing the benchmark index is up 1.8% to 5,877.7 points.

Four shares that are climbing more than most today are listed below. Here’s why they are racing higher:

The Australia and New Zealand Banking Grp Ltd (ASX: ANZ) share price has jumped 6% higher to $18.99. Investors continue to buy the big four banks, potentially on the belief that the worst is over for them. ANZ Bank’s latest gain means the banking giant’s shares are now up a remarkable 24% this week.

The Blackmores Limited (ASX: BKL) share price is up almost 3% to $80.99. Investors have been buying the health supplements company’s shares following the completion of the institutional component of its capital raising. Blackmores raised $92 million at an 8% discount of $72.50. It will now use these funds to strengthen its balance sheet, support its activities in the Asia market, and invest in its efficiency program. Another positive was that Blackmores revealed that it is on track to achieve its guidance in FY 2020.

The IDP Education Ltd (ASX: IEL) share price has jumped 5% to $17.72. This is despite there being no news out of the provider of international student placement services and English language testing services. However, with its shares down materially from their pre-pandemic high, it looks as though bargain hunters have been piling in today.

The Nearmap Ltd (ASX: NEA) share price has rocketed 18% higher to $2.27. This morning the aerial imagery technology and location data company released an update which revealed that its annualised contract value (ACV) had hit $102 million. This puts it well on course to achieve its full year ACV guidance of $103 million to $107 million. The company also reaffirmed that it expects to be cash flow breakeven by the end of the financial year. This is expected to leave it with a cash balance of $32 million to $35 million.

More reading

• Why the Nearmap share price has surged 15% higher today
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• Why the Blackmores share price is charging higher today
• What would $50,000 invested in the ASX 200 a decade ago be worth today?
• 5 things to watch on the ASX 200 on Thursday

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Nearmap 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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The Nearmap Ltd (ASX: NEA) share price has surged 15% higher in early morning trade today. This comes after Nearmap released a positive trading update on recent business performance and detailed the launch of its new ‘Nearmap AI’ product.

Continued Nearmap growth across key segments 

Nearmap informed the market that its overall recent business performance has been relatively strong. It’s seen continued month by month growth across its main industry segments despite challenging economic conditions triggered by the coronavirus crisis.

The company reports its actual cash value (ACV) portfolio to be in excess of $102 million. It anticipates a closing FY20 ACV portfolio value of between $103–$107 million, on a constant currency basis.

Sales activity levels were reported to have remained strong since the coronavirus onset and with customer churn to now be below 10% on a 12-month rolling basis. This is a significant reduction from the 11.5% last reported at the end of 2019.

The company did indicate there has been some downward momentum on sales growth. Some customers have delayed their purchasing decisions, however, Nearmap sees minimal overall impact on their expanding sales pipeline.

Cash flow break-even target on track

Back in April, Nearmap announced that a number of cash management initiatives were to be implemented to preserve its cash position and strengthen its balance sheet to avoid the need to raise additional capital. These measures were aimed at reaching breakeven point by the end of FY 2020 through an approximate 30% reduction in operating and capital costs.

Pleasingly, Nearmap reported today that it is currently on track to achieve its cashflow breaking target. The company predicts its cash balance to be between $32–$35 million by the end of this financial year.

Launch of Nearmap AI product

Nearmap announced that its new artificial intelligence (AI) product; Nearmap AI, is scheduled for initial launch on 1 June in both its Australian and United States markets. The launch of this new Nearmap AI product follows recent launches of the 3D and rooftop geometry products.

Nearmap will initially be targeting Nearmap AI in the insurance, utility and local government markets. All three of these markets saw strong demand for the new product while it was still in beta mode.

More reading

• Why ANZ, Blackmores, IDP Education, & Nearmap shares are racing higher
• ASX 200 up 2.4%: Blackmores raises $92m, big four banks jump, Nearmap rockets
• What would $50,000 invested in the ASX 200 a decade ago be worth today?
• Forget day trading: Get rich with these top ASX shares
• 3 timeless investing lessons from 2020 (so far!)

Motley Fool contributor Phil Harpur owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap 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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While the market has recently rallied around tourism and bank shares, some mid-cap Australian fintech shares have enjoyed double digit growth. Checkout.com, the UK’s fastest growing fintech, recently purchased Perth based Pin Pay, underscoring the level of international interest currently being garnered by Australian fintech companies. This is primarily for our $33 billion business-to-consumer eCommerce marketplace, but also for our access to Asia. 

These 4 mid-cap Australian fintech shares have each grown by over 30% this month alone.

Australian fintech mid-caps

Pushpay Holdings Ltd (ASX: PPH) has registered the largest amount of growth in May among the sector so far. If you invested in Pushpay at its low point on 16 March, your investment would have grown by 156%. The company is predominantly a donor payment management service. Its customers include faith based organisations and not-for-profit companies across Australia, New Zealand and the United States.

The Zip Co Ltd (ASX: Z1P) share price has surged by nearly 63% month to date. Zip Co is 1 year older than Australian fintech rival Afterpay Ltd (ASX: APT). The company offers credit lines and joined the buy-now-pay-later credit market in 2019 via acquisition. I personally think this company has a very long runway ahead of it. As a side note, the company also owns Pocketbook, a truly free budget planner.

EML Payments Ltd (ASX: EML) is the next largest growing mid cap Australian fintech for May. Its share price grew by 38% month to date with only a few trading days left. The company’s core revenue earner is one-off payments via gift cards at supermarkets. This is a high-margin activity that I believe is likely to enjoy further growth as we emerge from lock down. 

Tyro Payments Ltd (ASX: TYR) has seen its share price rise by 37% month to date. From its lowest point on 19 March, the Tyro share price has risen 290%, almost 4 times. The company processes EFTPOS payments along with offering other merchant services such as e-commerce.  

Foolish Takeaway

The Australian fintech sector is attracting a lot of attention globally. Along with world leaders like Afterpay, we are fortunate to have a range of up and coming, mid-cap growth shares listed on the ASX. Each of the 4 shares I’ve looked at here represents a billion-dollar-plus company. I believe all of them offer good growth opportunities and I’d be happy to add them in my portfolio. 

More reading

• 1 key trait to look for with most top ASX growth shares
• Should you ever buy ASX shares at an all-time high?
• Have $4,000? Invest in these 4 ASX shares right now
• Are these exciting small cap ASX tech shares the next Afterpay?
• Top broker says this ASX stock is a better buy than Afterpay

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited, Tyro Payments, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Emerchants 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.

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