Are these the best ASX mid-caps to watch?

ASX mid cap stocks are companies listed in Australia that sit somewhere between small cap and large cap status. Mid-caps used to be defined as having a market capitalisation between $1 billion and $5 billion, though more recently this has been upped to a valuation of between $2 billion and $10 billion.

Mid-caps explained

Just like ‘blue chips,’ there is no clearly agreed definition — so there is an element of subjectivity to the classification. However, the general consensus is that mid-caps have less of the risk associated with penny stocks, but with higher potential rewards than blue chips offer. Of course, the reverse is also true — a mid-cap is riskier than a large cap company and may be less rewarding than the right penny share.

As a rule, mid-caps do have somewhat established market position, and can be attractive targets for mergers and acquisitions. Indeed, many of the most promising ASX mid cap stocks never grow to large cap status as they are either bought out by bigger fish or swallowed by private equity before they reach too large a size.

They also offer investors portfolio diversification, as they can reduce overall risk because their performance is often not correlated with larger or smaller stocks.

On the other hand, mid-caps are typically volatile, can be less liquid than larger businesses, and often have less analyst coverage — making informed investing decisions trickier. They are usually also more sensitive to wider market conditions, and especially rate rises; typically, mid cap companies grow faster when rates are lower.

Of course, these general rules cannot be applied to individual companies. And as always, past performance is not an indicator of future returns.

Best ASX mid-caps to watch

The following five ASX mid-caps have delivered the largest capital gains on the ASX over the past 12 months. It’s worth noting, however, that these rises may not be sustainable or continue into the future.

1. IPH Ltd (ASX: IPH)
2. Megaport (ASX: MP1)
3. Life360 (ASX: 360)
4. Macquarie Technology Group Ltd (ASX: MAQ)
5. Lifestyle Communities Ltd (ASX: LIC)

IPH Ltd (ASX: IPH)

IPH Ltd is an intellectual property services firm, with a slew of leading brands under its penumbra, including AJ Park, Griffith Hack, Pizzeys, ROBIC, Smart & Biggar and Spurson&Ferguson.

The company has a team of more than 1,600 staff and operations spread throughout North America and the Asia-Pacific, in countries including Australia, Canada, China, Hong Kong, Indonesia, Malaysia, New Zealand, Philippines, Singapore and Thailand.

Analysts at Goldman Sachs expect the company to enjoy robust growth in years to come, on the back of "consistent and defensive earnings with modest overall organic growth."

Asia is set to be the fastest growing region for IPH, with Goldman projecting 10% volume growth per annum over the medium-term, as it leverages its presence in Singapore to grow in other parts of Asia.

Goldman currently has a buy rating for IPH with a $8.70 price target.

Megaport (ASX: MP1)

Megaport does business in multiple sectors, but its offers a platform which partners with leading global service providers, data centre operators, systems integrators, and managed services companies to help businesses get access to their networks.

This Network as a Service (NaaS) model means that Megaport can scale fast — as evidenced by the share price rise — with more than 850 enabled locations and 365 service providers across 25 countries.

Megaport operates one of the biggest SDN platforms globally, with a large part of its service comprising connecting customers to major cloud providers like Google Cloud, Amazon Web services and Microsoft Azure. The appeal is that its customers can establish connections instantly, and without needing to sign up to long-term contracts.

Given the rise of AI, it’s not hard to see why the company has performed so well — though it remains tied to any potential downturn too.

Life360 (ASX: 360)

Life360 owns the world’s number one family safety app, with its family of apps including Tile Bluetooth trackers and Jiobit GPS trackers, to offer complete location safety for family members, friends and pets.

At the end of 2023, the business boasted 61.4 million global monthly active users — up by 26% year-over-year —, more than 1.8 million global subscribers, and $274.1 million in annualised monthly revenue, an increase of 22% over 2022.

In recent results, CEO and co-founder Chris Hulls enthused that ‘looking forward to CY24, we are excited to announce the creation of a new advertising revenue stream that offers partners unparalleled reach to Life360's enormous free user base, and more than 20 million daily active users (DAU) connecting with their families and friends.’

Macquarie Technology Group Ltd (ASX: MAQ)

Macquarie Telecom Group Limited has operations across a range of distinct yet related sectors, including data centres, cloud computing, cyber security and telecommunications.

The company is one of the most trusted providers of these services in Australia, providing cyber security and cloud and data centres to 42% of the Federal government's agencies, including defence and intelligence.

Macquarie also offers hybrid AIT services to business customers, via the integration of data centres, cloud computing and dedicated servers.

Goldman Sachs is upbeat about Macquarie, on the acceleration of its data centre growth pipeline through 2024, via upsizing of the IC3W from 38MW to up to 45MW, and the development of a new site in the Sydney metro area. Macquarie's core cloud services and telco operations are also posting strong performancs.

For this reason Goldman has a buy rating for Macquarie with a $93.00 price target.

Lifestyle Communities Ltd (ASX: LIC)

Lifestyle Communities Ltd bills itself as a provider of residential housing to downsizer homeowners, including those who are retired, semi-retired and working downsizers. Its housing communities are advertised as affordable, low maintenance, with beautiful designs and best-in-class amenities.

The company foresees strong growth in this sector of the residential property marking, launching a $275 million raising in February to support growth into land lease residential estates.

Goldman Sachs is bullish about Lifestyle Communities following the equity raise, highlighting the alleviation of balance sheet pressure and potential improvements to settlements, earnings and cash flow into FY25/ 265.

The broker has a buy rating and a $21.32 price target for Lifestyle's shares.

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