Australia is one of the richest countries in the world. However, diversification is not utilised by a lot of Australian investors. Most people have a lot of their wealth tied up in one or a handful of properties plus bank shares. Arguably, the bank shares are also heavily linked to the property market.
Therefore, I think it’s very important for every investor to diversify away from these two areas.
Here are three ideas to do that:
Greencross Limited (ASX: GXL)
Greencross is Australia’s largest pet business, it runs Petbarn retail stores and Greencross veterinary clinics. It also offers a number of other services like grooming and pet insurance, anything a pet could need.
I believe Greencross has a good long-term future due to the rising pet population, it’s growing alongside the human population. It is also benefiting from the humanisation of pets, we are willing to spend more on our pets because we treat them like our children.
The share price has come under pressure recently due to a number of provisions and write-offs the new CEO has made. Hopefully these are short-term issues and Greencross will come out in a stronger position from FY19 onwards.
Greencross is currently trading at 11x FY19’s estimated earnings.
Propel Funeral Partners Ltd (ASX: PFP)
Propel is the second largest funeral operator in Australia and New Zealand.
Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. I think this will provide a slow-but-supportive tailwind for Propel to grow earnings in the coming years.
Propel could ‘propel’ returns because it plans to go on an acquisition spree to rapidly gain market share. Obviously roll-up strategies can go wrong, but if management execute the plan well then Propel could be one to watch.
It’s currently trading at around 25x FY18’s estimated earnings.
WAM Microcap Limited (ASX: WMI)
WAM Microcap is a fairly new listed investment company (LIC) that is run by the high-performing team at Wilson Asset Management.
It focuses on industrial businesses that are generally under a market capitalisation of $300 million at the time of acquisition.
In the financial year to date, the portfolio has returned 21.4% before fees, which is good in anyone’s book.
It has just started paying a dividend and assuming it repeats the payment at the annual result, it has a grossed-up dividend yield of 4%.
Considering all three shares are currently trading lower than they have done in recent history, I’d be happy to add to my positions at the current prices.
Greencross looks like the best value, but WAM Microcap will probably deliver the best returns over the next decade.
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Motley Fool contributor Tristan Harrison owns shares of Greencross Limited, Propel Funeral Partners Ltd, and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Greencross 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 Scott Phillips.