The ASX has had a strong run in the past few months, but it's important to realise that there are always a few bumps on the road and investors need to be fully prepared. Last week, the S&P/ASX 200 (INDEXASX: XJO) lost about 5% and if you made some terrible losses, it may be because your portfolio isn't diversified enough.
Diversification is the single most important investing concept and on Wall Street it's known as the "only free lunch" for investors. It allows investors to gain the full benefits from market upturns, while shielding them from turbulence in the market. Here are four stocks from a diverse range of industries that I think are strong candidates for your diversified portfolio.
1. Flight Centre Travel Group Ltd (ASX: FLT) is a household name when it comes to travel agencies, providing customers with holiday and travel reservations. Despite weaker consumer confidence levels, Flight Centre has been able to grow underlying profits modestly in recent times. This is due to its competitive advantages when it comes to mixing its online services with its physical services from its bricks-and-mortar stores.
Flight Centre trades on a cheap price-to-earnings ratio of 16 and offers a 3.7% fully franked dividend yield, perfect for both growth and income investors.
2. Legal eagle Slater & Gordon Limited (ASX: SGH) is one of Australia's fastest growing legal firms. Shareholders in Slater & Gordon have enjoyed total shareholder returns of 33.5% per annum for the past five years. With growth in Australia slowly starting to level off, Slater & Gordon is now looking to geographically expand into the UK. Given its strong business model and quality management, I have no doubts in its ability to replicate its Australian success.
Slater & Gordon's 1.4% dividend yield may not be the best out there, but its future growth potential more than compensates investors. I think Slater & Gordon offers quality exposure to the legal industry and current prices hint at a buy.
3. ResMed Inc. (ASX: RMD) provides a wide range of medical equipment to treat sleep apnea, an increasingly common condition affecting a large chunk of the U.S population. With the release of its new Air Solutions platform, ResMed is likely to see stronger sales volume, reviving its flat U.S sales growth. Furthermore, with our ageing population and increasing obesity levels being catalysts for ResMed's products, it is likely to see stronger demand for its products in the near future.
ResMed's current price means it trades on a modest 19 times FY15 earnings, but I think its ability to provide gains in the long term is what investors should be excited about.
4. GBST Holdings Limited (ASX: GBT) provides a range of software services to the financial services industry. Despite having a small market capitalisation of $233 million, GBST has strong long-term tailwinds to look forward to. It has recently established strong ties in the UK and is seeking to capitalise on the UK's massive asset management market. Furthermore, GBST has recently signed two major software services deals with a major U.S investment bank.
With analysts' forecasts for double-digit earnings growth for the next two years, GBST seems to be all set to provide shareholders excellent share price growth.
