Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 549

3 under the radar investment opportunities

There is a lot of noise in markets. What's going to happen with Donald Trump? Is he going to win the next election? What's going to happen with interest rates, inflation, geopolitical conflict? Part of our job is to cut through that noise to try and understand what true tangible changes are taking place in industries, sectors and markets that we can take advantage of as investors. Let’s have a look at three examples.

Cyclical change – Coming out ahead at the grocery store

We have 18% exposure to emerging markets in our global portfolios. This includes Brazil, which has had a volatile economy, and been through all sorts of cyclical ups and downs. Yet, interest rates are starting to come down, consumer confidence is rising, unemployment is declining, while people's ability to borrow is increasing. That's leading to a real consumer recovery in Brazil. It's a cyclical change we want to be a part of, and we are taking advantage of that through Sendas Distribudora (BVMF:ASAI3).

This is a Brazilian cash and carry grocery store that’s popular among the well off. This business bought one of its competitors at an unfortunate time, when interest rates really started to accelerate, and they took on debt. Now what they're doing is rolling out stores at a rapid pace. They're refurbishing those stores that they bought and opening them at three times the rate of sales that they had before. So you're getting this really nice double digit revenue growth rate. Then you've got the cashflow coming out of these new stores and you've got interest rates coming down.

That means that they're now growing earnings at 20% per annum. And yet this grocery retailer is trading at just eight and a half times PE. We can compare that to a developed market equivalent of Costco, but to buy Costco, it will cost you a 40x earnings multiple. 

Structural change – AI, but the boring bits

A lot of the structural shift that's taken place with AI has been on the consumer facing side. With the likes of Netflix, Apple Music, Microsoft apps on the cloud etc.

A big shift is about to happen on the less exciting end of things, with back-office databases and the infrastructure as a service element of this cloud transition. And as that shift takes place, we are going to continue to have 15 to 20% organic migration growth coming from that growth in the usage of cloud. It'll come from new products, and AI will be a real way for this growth to be augmented over time.

And the pragmatic value way that we are playing that trend is through Oracle (NYSE:ORCL). This is a business that was written off by the market about 10 years ago. The CEO famously said that he thought cloud was a fad. Therefore, the company was slow to move on the 'fad' and paid the price. Now, it's a different story.

You can see that with those gray bars, Oracle's on-premise ERP stuff is declining. It's being replaced by cloud infrastructure revenue that is growing at 50% per annum. And as they augment that infrastructure as a service with platform and with software, they're actually getting three to five times the customer value out of those business.

Oracle is trading at 20x earnings and growing at 10-15% per annum. So it's growing faster than the market and it's trading at a cheaper multiple.

Energy transition as socio/macroeconomic change

Socio/macroeconomic change is now achievable and in lots of different ways. One of the least exciting is through efficiency. That means things like using insulation, reusing materials, having more energy efficient air conditioning in your home. Efficiency is quite a broad-based investment opportunity within this broader circle of socio/macro change and the way that we're participating in this is through French multinational building materials company Saint-Gobain (EPA: SGO). This is a business that has really re-engineered itself towards sustainability.

75% of the products and services that they sell now are sustainability focused. This is leading to higher and more predictable growth. To give you an example of Europe, 90% of buildings actually need to be retrofitted with things like insulation. It's going to triple the renovation rate in Europe. So this is a business that's getting higher growth than it used to. It's getting better profitability, it's getting better return on its capital employed and it's getting better cashflow.

They've actually increased their dividend. They're paying back 6% of their stock. And this is a business that's trading on a single digit multiple. This is a multiple that is at a 10 to 15 year low for a business that has better forward-looking economics than in the past. And the reason for that is because people are worried about the mortgage cycle and they're worried about what's going to happen with new builds, when the reality is this is a story that is about sustainability and the market is missing the point when it comes to the future of this business.

 

Vihari Ross is a Portfolio Manager at Antipodes Partners, an affiliate manager of Pinnacle Investment Management. Pinnacle is a sponsor of Firstlinks. This article is for general information purposes only and does not consider any person’s objectives, financial situation or needs, and because of that, reliance should not be placed on this information as the basis for making an investment, financial or other decision.

For more articles and papers from Pinnacle Investment Management and affiliate managers, click here.

 

RELATED ARTICLES

Charlie Munger on Buffett, gambling, Apple, and China

Five global trends point to buys and sells for 2022

Boring can be beautiful when investing

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.