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Forget Telstra Corporation Ltd and buy these 2 growing mid cap stocks instead

The beauty of owning a large blue chip stock such as Telstra Corporation Ltd (ASX: TLS) is not only the juicy dividend yield of around 5.7% fully franked but also exposure to a relatively defensive business with steady revenues and earnings.

The reliability of Telstra’s business is a positive attribute as it hopefully limits the downside risks to the stock and maximises the chance of preserving your capital.

By the same token, a business such as Telstra’s provides a high level of confidence in the group’s future dividend stream.

With attributes like these, it really is no wonder that Telstra is such a popular stock!

An important takeaway from the above is that when you own smaller companies there is generally a higher propensity for volatility in their results. In other words, the nature of their revenues and earnings are less reliable.

By the same token, this higher risk is countered by higher potential rewards.

To limit the damage which can be done from the higher risk involved with investing in small caps generally, diversification and asset allocation can be particularly important.

With those warnings in mind, here are two stocks that have exciting growth prospects – certainly more exciting than Telstra’s in my opinion. They could form part of a diversified smaller company portfolio allocation.

Mantra Group Ltd (ASX: MTR) is a leading Australian accommodation operator with a chain of hotels, serviced apartments and resorts under the well-known brands of Peppers, Mantra and BreakFree.

The stock is trading on a forward price-to-earnings (PE) ratio of around 17 times.

With organic growth coming from increased inbound tourism and greenfield expansion, coupled with inorganic growth via bolt-on acquisitions, the long-term outlook for this well managed company appears favourable.

Ardent Leisure Group (ASX: AAD) operates a range of theme parks, bowling centres and fitness centres throughout Australia. However it’s the group’s Main Event family entertainment venues in the USA that offer the most exciting growth potential.

The stock is trading on a forward PE ratio of around 14 times.

With growth forecast to have been flat in financial year 2016 but earnings growth totaling 33% over the following two years, the soon to be released full year results and outlook statement will be worth a close read.

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Motley Fool contributor Tim McArthur has no position in any 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 Bruce Jackson.

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