- Diversification is a key component of minimising risk in business.
- Companies with diversified business operations have more consistent earnings than their sectoral counterparts.
- While investing in stocks, maintaining a diversified portfolio is one of the key aspects.
Diversification is seen by many as an excellent method to lessen risks. The technique implies assigning investments and resources across different financial industries and categories. Though it's not a sure-shot way of providing a full guarantee against loss, the technique is an important component of enriching business and minimising risk factors.
Companies diversify their operations to remove dependency on a single unit of business. Different business segments have different growth cycles and industry regulations, making it smoother for a company to manage bad times. A good performance in one segment often proves helpful in compensating for the poor performance of another. Therefore, companies with diversified business operations have more consistent earnings than their sectoral counterparts.
While investing in stocks, it is also very important to maintain a diversified portfolio as it provides better opportunities and higher risk-adjusted returns. Let's suppose your portfolio is made entirely of oil and gas stocks. Any bad news or strict regulation imposed upon the industry might affect your whole portfolio leading to losses. You can avoid this by adding some stocks from the clean energy sector as your entire portfolio will then not be affected.
Further, there are chances that the price of clean energy will surge as people start looking for other energy sources.
In this article, we at Kalkine Media® will discuss some stocks from the ASX whose companies have diversified business operations.
Wesfarmers Ltd (ASX:WES)
Wesfarmers Limited specialises in different kinds of business operations such as:
- home improvement and outdoor living
- health, beauty, and wellbeing
- apparel and general merchandise
- office supplies
- safety and industrial products
- chemicals, energy, and fertilisers
In March, Wesfarmers executed a Scheme of Arrangement under which the company's wholly owned subsidiary, WFM Investments Pty Ltd, acquired 100 per cent of the shares in Australian Pharmaceutical Industries Limited (ASX:API), which was a crucial milestone for both API and Wesfarmers.
New Hope Corporation Ltd (ASX:NHC)
New Hope Corporation is an ASX-listed diversified energy company which is involved in the development and operation of coal mines, development and production of agriculture, oil and gas, port handling and logistics.
New Hope recently acquired a 15% interest in Malabar Resources Limited through its wholly owned subsidiary for a total investment of AU$94.4 million.
Following are the highlights of the company from the March 2022 quarter:
- Strengthening of coal prices led to an underlying EBITDA of AU$358.6 million
- Witnessed record high coal prices following the Russian invasion of Ukraine
- Interim dividend payment of UA$281.8 million
Ramsay Health Care Limited (ASX: RHC)
Ramsay Health Care has a worldwide teaching, research, and clinical practice network. Its global network extends across ten countries and over 532 locations.
Ramsay has committed to near- and long-term science-based decarbonisation targets to attain steady net zero greenhouse gas releases with a 1.5-degree pathway.
Schaffer Corporation Ltd (ASX:SFC)
Schaffer Corporation Limited is an industrial company with diversified operations focused on automotive leather manufacturing, property and equity investing, concrete product manufacturing and leasing.
In the 2021 annual general meeting, the company reported a 26% increment in revenue and a 65% increment in Net Profit after Tax (NPAT). Similarly, its earnings per share increased by 66% and ordinary dividends increased by 12%.
Considerable surge in volumes in the automotive leather segment resulted in a 27% surge in revenue and 38% increase in NPAT.
The company's 5-year total shareholder return to September 2021 was an outstanding 47% per year.
Super Retail Group Ltd (ASX: SUL)
Super Retail Group deals in retail business operating in Australia, New Zealand and China. The products and services offered by the company's brands are as follows:
During the first half of FY22, the company reported record online sales with a 64% increment in digital sales and the Group gross margin was 46.7%.
Fleetwood Ltd (ASX:FWD)
Fleetwood Limited operates via the Building Solutions segment, Community Solutions segment, and RV Solutions segment engaged in manufacturing, installing, and distributing recreational vehicle parts and accessories.
Last month, Fleetwood signed an agreement with Rio Tinto. The agreement which will remain is place for 5 years is regarding accommodation services in Karratha. It is anticipated to generate revenue in the range of AU$52million and AU$70million.
Metcash Ltd (ASX:MTS)
Metcash Limited has three operating segments: food, liquor, and hardware. The food segment involves distribution of different kinds of products and services to supermarket and retail outlets. The liquor segment involves supply of liquor to hotels and retail outlets. The hardware segment supplies hardware products to the company's own retail stores and independent retail outlets.
During FY22, the company's group revenue and group EBIT increased by 6.4% and 17.7%, respectively. Similarly, Metcash reported a record group revenue of AU$17.4B during that period.
Merchant House International Ltd (ASX: MHI)
Merchant House International has four operating segments:
- Home textile manufacturing
- Home textile trading
- Footwear manufacturing
- Footwear trading
In the quarter ended 30 June 2022, the company's customer receipts amounted to AU$4.26 million. MHI ended the quarter with a cash balance of AU$12.63 million.