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

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

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.