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How I’d invest $10,000 into large caps

I think investors are selling themselves short if they go for the largest shares on the ASX like Commonwealth Bank of Australia (ASX: CBA), Australian and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).

However, I can also understand that many investors don’t want to venture into the risky world of the small cap region of the share market. There are still a number of quality businesses in the S&P/ASX 100 that are worth looking at for your portfolio.

If I were investing $10,000 into large caps today, this is how I’d do it:

Challenger Ltd (ASX: CGF) – $4,000

Challenger is my favourite business in the ASX 100 and is also one of the biggest positions in my portfolio.

It’s Australia’s leading annuity provider, turning a retiree’s capital into a guaranteed source of income. It is on course for long-term growth thanks to Australia’s mandatory superannuation contributions, recent budget changes and a rising retiree population.

An extra bonus is that it’s working with one of Japan’s largest financial businesses as well.

It’s trading at 17x FY19’s estimated earnings.

Ramsay Health Care Limited (ASX: RHC) – $2,500

Ramsay is Australia’s largest private hospital operator and one of the largest in the world. It is also exposed to the ageing demographics of Australia, the UK and France. Sadly, the older we get the more likely it is that we need some sort of medical assistance.

There has been a lot of negativity surrounding Ramsay, with difficult trading conditions in the UK and France. Not only that, private health insurance affordability is a major talking point and there has been media attention looking at the possibility that private surgeons have been overcharging.

However, Ramsay itself is a quality business and could create lower-risk long-term returns at the current price, almost the lowest value it has been for many years.

It’s currently trading at 18x FY19’s estimated earnings.

Crown Resorts Ltd (ASX: CWN) – $1,500

Crown is Australia’s largest casino and entertainment complex business with its major establishments in Melbourne and Perth.

The business is getting back to decent organic growth, putting its Chinese VIP gamer troubles behind it. It also comes with a partially franked dividend yield of 4.4%.

Long-term growth could be achieved with tourism tailwinds and Crown Sydney which will be completed in a few years’ time.

It’s trading at 22x FY19’s estimated earnings.

Macquarie Group Ltd (ASX: MQG) – $2,000

Macquarie is by far my favourite large cap bank because its earnings are very different to the big four banks. It does earn a little from Australian mortgages, but it earns a lot more from its asset management businesses.

It’s a much safer proposition than the pre-GFC Macquarie as it generates a lot of recurring management fees from ‘annuity-style’ businesses.

Macquarie seems like a very good forward-thinking bank by focusing on renewable energy and infrastructure. It also comes with a pleasing partially franked dividend yield of 4.3%.

It’s trading at 16x FY19’s estimated earnings.

Foolish takeaway

I like all four of the above businesses. Each of them are exposed to different risks, which means you are getting good diversification. They offer decent long-term growth prospects and also come with a solid dividend yield too.

Not only is Challenger my favourite of the four, I also think it’s trading at the best value and has the most compelling long-term opportunities. I may buy more shares over the next month or two.

Another large, lower-risk business is predicted to generate profit growth of more than 30% in this year alone. This top ASX share should be on everyone’s watchlist.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited and Crown Resorts Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Ramsay Health Care 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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