Who else wants to diversify their portfolio?

These 3 shares will diversify your portfolio.

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I think it's more important than ever to diversify your portfolio away from the banking sector and the big end of the share market. I think those largest stocks are actually some of the riskier choices these days because they may not grow over the next few years.

Instead, I think investors should look further down the list of market caps and identify some of the businesses that will grow no matter what economic conditions are happening.

Here are three shares to diversify your portfolio:

REA Group Limited (ASX: REA)

Many investors think the only way to get exposure to the residential property market is to invest in an actual property. However, I think REA Group is a much better option.

With negative gearing and rental cash losses prevalent, the only way for property investors to make any money is with house price growth. REA Group can grow its price per advertisement, but it can also grow revenue if more properties are listed and how long they are listed on the site.

REA Group is currently trading at 36x FY18's estimated earnings with a grossed-up dividend yield of 1.7%.

Sydney Airport Holdings Ltd (ASX: SYD)

Sydney Airport could be one of the best stocks to benefit from the tourism boom in Australia. In its November 2017 update it revealed that international passengers had grown by 7.1% compared to November 2016.

The growth in passengers means passenger fees, car park fees, airport retail fees and various other revenue streams should increase.

Sydney Airport is currently trading at 38x FY18's estimated earnings with an unfranked dividend yield of 4.97%.

National Veterinary Care Ltd (ASX: NVL)

National Vet Care is one of my favourite small cap growth stocks. It's a veterinary clinic operator that is steadily adding more clinics to its network to improve its margins and grow profit.

Just last month management announced that the business would be acquiring a further four clinics which should add a total of $4.5 million revenue and $0.79 million earnings before interest and tax (EBIT) to a full-year result.

National Vet Care is currently trading at 35x FY17's earnings with a grossed-up dividend yield of 1.47%.

Foolish takeaway

The share market is quite expensive at the moment and these three shares are no exception. At the current prices I'd only be willing to buy National Vet Care shares because I believe it will grow profit by a lot over the next few years.

Motley Fool contributor Tristan Harrison owns shares of NATVETCARE FPO. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. The Motley Fool Australia has recommended REA Group 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 Bruce Jackson.

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