Portfolio diversification is one of the earliest lessons you get when you are learning how to invest in stocks. Portfolio diversification is one of the ways investors can protect themselves from incurring unusually high losses. Whereas if a significant portion of your portfolio is from a single sector or industry, a drastic downturn within that industry may sink your portfolio faster than a market crash.
So diversification (in moderation) is a healthy strategy, and if you are seeking a market segment that you might have overlooked so far, engineering services are worth looking into.
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SNC-Lavalin stock
SNC-Lavalin Group (TSX:SNC) is a Montreal-based company that offers engineering, designing, and construction services to a wide range of clients. They include services to transportation, defence, water, power, and renewables companies. The geographical portfolio of its services is just as diverse. Its current projects are spread around the world, though North America has the highest concentration.
It’s also a financially sound company. It carries a significant amount of debt, but that’s natural for a company with so many international projects underway, and its revenues are more than enough to help it stay ahead of its debt obligations.
The company was a powerful grower before the great recession, but since then, its growth hasn’t been very consistent. It has risen and fallen multiple times and is currently riding strong bullish momentum that has pushed its value up by 75% this year alone.
The valuation doesn’t support this growth momentum, but if its past growth phases are any indication, the current growth phase may go on for some time before waning.
WSP Global stock
WSP Global (TSX: WSP) is also based in Montreal. From a market capitalization perspective, it’s a significantly larger company compared than SNC-Lavalin. It offers engineering and other services to a wide range of clients, and its strongest asset is access to professionals from all across the globe.
It has a team of over 66,000 talented professionals serving various regions. The company makes most of its revenues from the Transportation & Infrastructure sector and its environmental business segment.
Environmental solutions, especially on the scale that WSP Global is equipped to provide, may grow to be its largest segment in the coming years, considering how rapidly big money is moving toward sustainability.
WSP Global is a powerful and very consistent grower. It returned over 870% to its investors in the last decade, and the bulk of it came from its capital appreciation. It’s also a relatively resilient stock, making it a good pick in shaky markets. Its age, market presence, and capitalization also make it a blue-chip stock.
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Foolish takeaway
The two stocks offer different types of return potential. SNC-Lavalin is currently going through a powerful bullish phase that can lead to significant short-term returns. In contrast, WSP Global can be a powerful long-term holding, especially if it can repeat the growth it offered in the last 10 years.
