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Who else wants to diversify their ASX share portfolio?

I believe that diversification is important to achieve satisfactory returns with ASX shares in the short-term and the long-term.

Diversification doesn’t just mean spreading your money among Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and Telstra Corporation Ltd (ASX: TLS).

I think it’s important that investors spread their money across different industries and different businesses that have good growth prospects.

Here are three ASX shares I think fit the bill:

National Veterinary Care Ltd (ASX: NVL) 

We value our pets almost as much as children in a trend that’s called ‘humanisation’. Pet owners are very willing to take their pet for an annual check-up and pay what it takes to keep animals alive and well, which is good for National Vet Care.

The company is utilising an effective acquisition strategy to increase its presence in Australia and New Zealand whilst also focusing on improving the profitability of those vet clinics. A growing pet membership program and its managed services division are two useful bonuses.

If it can keep growing organic revenue whilst also improving its earnings before interest, tax, depreciation and amortisation (EBITDA) margin then it should be able to produce some decent results over the next few years.

Tassal Group Limited (ASX: TGR) 

There is a growing demand for healthy, quality fish domestically and abroad. Tassal is one of the main companies fulfilling that demand with its salmon farms and newly-acquired prawn farms.

Tassal has managed to steadily increase its operating earnings and dividend over the last few years yet the share price has fallen 20%, which means investors are able to buy these earnings at a cheaper price. But, there is a risk that a disease could smash profit in one year. 

It’s trading at under 13x FY20’s estimated earnings with a partially franked dividend yield of 4.4%.

Reece Ltd (ASX: REH) 

The bathroom and plumbing business is in the higher-quality group of businesses in my opinion with very aligned management, a long-term focus and good growth potential.

I’m attracted to its growth potential in the US with the MORSCO acquisition, particularly in the warmer ‘sun belt’ region. Reece has a much larger total addressable market to address. 

Reece is in a variety of sectors including irrigation & pools, civil, HVAC-R and so on, adding earnings diversification.

Foolish takeaway

All three businesses offer something quite different to most other ASX shares. At the current prices I’d go for Reece because of its organic growth potential and high-quality management.

But Reece isn’t the only quality mid-cap share that could help you diversify a portfolio, these top shares could definitely help with that goal.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of NATVETCARE FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of National Australia Bank 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.

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