Building a solid portfolio can be a daunting task. It is easy to get distracted by the latest growth stock on the market, but you have to also remember to diversify your holdings so that you can create exposures to different economic factors and trends. This will reduce the overall volatility of your portfolio and allow you to profit from developments in different areas of the economy.
With that in mind, here are 5 stocks that I think are "must-haves" for any portfolio. These are all market leading, established companies with a track record of success. However, all 5 of them still offer exciting growth opportunities for investors.
Challenger Ltd (ASX: CGF)
Challenger provides exposure to the financial and superannuation sectors, while also benefitting from Australia's shifting age demographics. Like many developed nations, Australia has an ageing population – the Australian Government's Institute of Health and Welfare projects that by 2057 22% of the population, or 8.8 million people, will be aged 65 and over.
As more Australians live into old age, they will have to make decisions about how to manage their finances. This is where Challenger comes in. The company specialises in selling annuities, which are financial products that provide a steady source of income for retirees cashing out their super funds.
Cochlear Limited (ASX: COH)
Healthcare is another way to profit from an ageing population, as well as providing diversification benefits to your portfolio. Investments in healthcare companies can be good defensive plays in times of market turbulence, as people's basic need for healthcare remains even in economic downturns. Plus, the specialised skills and knowledge required of successful healthcare companies generally mean that they have well-diversified products and significant economic moats.
Cochlear claims that nearly 1 in 3 people over the age of 65 suffer from a hearing impairment, but global market penetration for hearing implants is still only 5%. This means that even a company as established as Cochlear, that last year generated revenues of almost $1.4 billion, still has plenty of room to grow.
Altium Limited (ASX: ALU)
A portfolio wouldn't be complete without some exposure to the technology sector. There are plenty of growth options in the tech space, like data warehousing specialists Nextdc Ltd (ASX: NXT), AI and data analytics company Appen Ltd (ASX: APX) or cloud-based logistics software developer WiseTech Global Ltd (ASX: WTC).
But my pick of the bunch would still be Altium. The company produces printed circuit boards, an integral component to almost all electronic devices. Its client list includes global tech giants Dell, Microsoft, NASA, and SIEMENS.
Altium has 30 years of R&D investment under its belt and a proven track record of success. The company surprised the market with its FY18 results, where it reported NPAT growth of 34% to $37.5 million against revenues of $140.2 million.
REA Group Limited (ASX: REA)
REA Group operates the leading property websites realestate.com.au and realcommercial.com.au. As it is a pure play online retailer, an investment in REA Group provides additional exposure to the digital technology space.
However, more importantly, REA Group provides diversification benefits through its positive correlation with movements in the Australian property market. When the property market is booming, properties will be listed more frequently on REA's websites, boosting the company's revenues.
I believe building a portfolio around healthcare stocks is a great strategy for long-term growth, but you have to choose wisely. The healthcare sector can deliver market-beating long-term returns for shareholders, but it can also be a difficult industry for new companies to break into. Before companies are able to commercialise a treatment, they have to invest significant capital into research and clinical trials in order to prove its efficacy.
So while there are plenty of new up-and-coming healthcare and biotech companies listed on the ASX, like Cynata Therapeutics Ltd (ASX: CYP), or Opthea Ltd (ASX: OPT), I'd prefer to build my portfolio around companies that have a proven ability to generate revenues.
This is why I'd choose ResMed. It is a healthcare company that specialises in the treatment of sleep apnoea and other chronic respiratory diseases. For the 3 months ended 30 September 2018, ResMed generated a little over $588 million in revenues. Net income for the quarter was almost $106 million, an uplift of 23% against the same quarter in the prior year.
