Making money from stocks may seem easier given the ASX's record performance in the past few years, but investors don't get it right all the time. In fact, one of the major causes of heavy losses for investors is a lack of diversity in investor portfolios.
Diversification has become an increasingly popular concept when it comes to investing. From a young age we were taught not to put all of our eggs in one basket. Investors with heavy reliance on resource stocks saw how dangerous it can be not to diversify, when they were losing much of their capital.
Every time I have some spare cash, I try to buy quality stocks from different sectors of the market, in order to reduce my risk. Here are three stocks that I would definitely consider adding to my portfolio.
1. Insurance Australia: Financials.
Insurance Australia Group Limited (ASX: IAG) operates quality brands such as NRMA and SGIO. Following its outstanding performance in 2013, Insurance Australia has also confirmed its guidance to be on the upper end of the scale. To top this off, recent approval from regulators to complete its $1.845 billion purchase of Wesfarmers' insurance wing, will also provide some solid returns for the years to come and boost its market share relative to competitors like QBE Insurance Group Ltd (ASX:QBE).
Trading on a cheap price-to-earnings ratio of 10.79 and offering a crazy 5.9% fully franked dividend yield, Insurance Australia seems to offer the whole package. If I had some spare cash, I would definitely add more Insurance Australia to my portfolio.
2. ResMed: Healthcare.
ResMed Inc. (CHESS) (ASX: RMD) is one of my favourite companies when it comes to healthcare products. The giant, provides a wide range of medical equipment to treat sleep apnea, an increasingly diagnosed condition affecting about 20% of the U.S. population. Despite recent results showing some softer earnings figures in the U.S, ResMed has a lot to look forward to.
The world's increasingly high obesity levels and ageing population enables ResMed to reap the benefits of higher diagnosis rates, boosting sales. These factors lead me to believe that its short-term troubles in the U.S. are going to fade away as its long-term tailwinds kick in.
ResMed trades on a modest price-to-earnings ratio of 19 and its recent share price dip offers a great opportunity for investors to grab a slice of a quality company with a bright future ahead of it.
3. Cash Converters: Retail.
Retailer Cash Converters International Ltd (ASX: CCV) has much more than meets the eye. Many look at Cash Converters only as a retailer of second-hand goods, yet it generates the bulk of its earnings from its financial services sector, offering personal loans and cash advances. Despite a disastrous run in 2013 where it lost about 50% of its value, Cash Converters looks set for some solid growth.
Its international expansion into New Zealand and South America offers exciting growth prospects and a more diversified revenue base. Furthermore its latest acquisition of the profitable all-in-one car finance provider Carboodle business, also provides some serious competitive power and earnings growth for the future.
The best part of it is that Cash Converter trades on a cheap price-to-earnings ratio of only 12.76 and offers a 3.7% fully franked dividend yield. Despite recent gains, Cash Converters is a solid buy for me.
