Some companies – think Domino’s Pizza – stick to what they do best. Some seek growth by exploring new sectors. On occasion, it goes spectacularly wrong: witness GEC’s disastrous foray into telecoms as Marconi. But sometimes diversifying into another industry boosts overall growth; if the new business is in a defensive sector, it tempers exposure to the economic cycle. One early notable bi-divisonal company was Richard Branson’s Virgin Group, which started as a record shop in the early 1970s but then started Virgin Atlantic Airways in 1984. Before it sold the Costa coffee chain, Whitbread, which also owned the Premier Inn budget hotel chain, was a good example. Google’s shift into self-driving cars is another one, while in the private market, Dyson is adding electric cars to its existing range of airflow products (vacuum cleaners to fans).
Twelve listed stocks with activities in two sectors are highlighted in the table below. They span a wide range of sizes and sectors from food and health to retail and robots, with market values from £200m to $1trn. The new divisions mostly have higher profitability than the original ones and so raise overall group profitability. Five of the 12 companies have health as a new growth sector. One of the advantages of health is that products can usually be patented and must meet strict regulatory standards. Once they are approved, then, potential competitors face twin barriers to entry. Here are the stocks I like most.