Reporting season is here and share prices in some favourite S&P/ASX 200 Index (INDEXASX: XJO) stocks are falling like flies.
Unfortunately for share market investors, there is no guaranteed method for avoiding these potential pitfalls to your wealth. For growth investors especially (i.e. those who take on more risk for, potentially, more reward), the occasional dramatic fall in share price can be expected.
Last week's fall in REA Group Limited's (ASX: REA) share price and JB HI-Fi Limited's (ASX: JBH) drop today prove that share price appreciation is anything buy smooth sailing.
However these sudden drops also give rise to an important investment strategy many growth investors (myself included) frequently overlook. Diversification.
Diversifying portfolios away from high-growth sectors is vital for sustainable long-term capital gains. Defensive businesses should make up a big portion of any investors' share portfolio, in my opinion.
And it's not like Australian investors don't have enough stocks to choose from! Here are five you should consider adding to your watchlist and, with a significant setback in share price, could consider adding to your long-term portfolio.
1. APA Group (ASX: APA) is involved in the transportation of approximately half Australia's gas. It is very well positioned to benefit from the rising output from Australia's key energy basins.
2. Brambles Limited (ASX: BXB) is a supply-chain logistics company with exposure to more than 50 countries. Although its shares are fully priced today, the $14 billion company deserves a spot on savvy investors' watchlists.
3. Amcor Limited (ASX: AMC) is a packaging company with operations throughout the world. Although it is forecast to pay a strong dividend this year, I'm waiting on the sidelines for a lower share price before hitting the buy button.
4. Aurizon Holdings Ltd (ASX: AZJ), formally QR National, is Australia's largest rail freight operator which will benefit from increased production at iron ore and coal mines throughout the country. Analysts expect earnings per share to rise strongly in coming years.
5. Toll Holdings Limited (ASX: TOL) is a transportation business which has been in operation for over 100 years. It will be a direct beneficiary of Australia's ongoing push into online retailing and fast-tracked delivery services.
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There's no way to avoid volatility in the share market. However by maintaining a diversified portfolio the chances of experiencing significant falls in your portfolio's overall value is greatly reduced. I've got each of these five stocks on my watchlist but I'm yet to hit the buy button on any of them because I believe none are a standout buy at today's prices.
