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These 3 shares will give your portfolio instant diversification

Don't put all your eggs in one basket...

Diversification is one of the key attributes to making sure a portfolio does well in good times and bad times.

Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are all good businesses but they all face exactly the same risks.

I think a wise investor diversifies away from the biggest shares and includes some other businesses in other industries.

Here are three shares I’d happily invest in to diversify my portfolio:

DuluxGroup Limited (ASX: DLX)

DuluxGroup is the owner of many of Australia’s leading home improvement including Dulux, British Paints, Sellys, Cabot’s and Yates. Many of these brands will be used throughout economic cycles and should see more usage as Australia’s populations grows alongside the number of homes.

It’s a slow-and-steady grower which really fits into Warren Buffett’s philosophy of brand power.

DuluxGroup is currently trading at 19x FY18’s estimated earnings.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Domino’s is Australia’s largest pizza business and also owns the franchise rights in Japan, France, the Netherlands and Germany. The pizza company has big plans to grow its profit margins and store numbers over the next several years, which should be a good boost to its bottom line.

For me, an underrated statistic is Domino’s same store sales growth. It has achieved good growth over the past few years due to good menu changes and additional items. Plus, technology improvements could boost margins even more in the future.

Domino’s is currently trading at 30x FY18’s estimated earnings.

Zenitas Healthcare Limited (ASX: ZNT)

Zenitas is a small cap business operating in the healthcare space. It operates in three main areas, which are home care, allied and primary. I like the look of Zenitas because it aims to reduce the need for patients to go to high-cost healthcare centres like hospitals.

Zenitas is currently trading at around 12x FY18’s estimated earnings.

Foolish takeaway

I think all three companies will go on to beat the market over the next five years, but I think Zenitas looks like the clear winner to me because of how low its price/earnings ratio is and how much it could grow thanks to Australia’s ageing demographics.

These top stocks would also be excellent ways to diversify your portfolio away from the banks.

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Motley Fool contributor Tristan Harrison owns shares of Zenitas Healthcare Ltd. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Zenitas Healthcare Ltd. 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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