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A big cap and mid cap to buy now and one to watch

Challenger Ltd (ASX: CGF) is an insurance company and an investment management company that is predominantly involved in providing retirement solutions, annuities. I like the company as it is in the best position to take advantage of the Government’s new framework for retirement income products, to support the increasing ageing population. The Government recently announced that a retirement income covenant is to be included in the Superannuation Industry (Supervision) Act 1993, requiring trustees to offer Comprehensive Income Products for Retirement (CIPRs) that will facilitate lifelong income. Insurance companies are the only providers of annuities with Commonwealth Bank of Australia’s (ASX: CBA) CommInsur the other main provider, although other insurance companies are likely to play catch up on the back of the proposed changes to Superannuation.

Aferpay Touch Group Ltd (ASX: APT) is trading on a high forward price-earnings-ratio (PER) and subject to a review by Australian Secuities and Investment Commission of the buy-now-pay-later operators the company is likely to continue to grow strong earnings. The announcement of today’s foray into the US with Urban Outfitters, a robust US-based portfolio of consumer lifestyle brands, will provide further support to future earnings. Millennials’ reluctance to use credit cards as well as the size of the US fashion market of around $60 billion compared to Australia’s $3 billion go a long way to grow earnings. If you can stomach the high PER it is an exciting mid-cap to consider.

Prospa, known as a financial technology company or fintech, rather than a financial services company, is yet to be listed but will definitely be one to watch. As an online lender for small businesses, it is in a great position to be a major bank disruptor in the small business lending space. Other disruptors such as SocietyOne (rumours of a listing) and RateSetter have similar operations but also offer personal loans.

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Motley Fool contributor Rosemary Steinfort has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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