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.

 

  •   28 February 2024
  • 1
  •      
  •   

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

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Latest Updates

Fixed interest

Higher yields are creating opportunities in global bonds

Bond markets are adjusting to a new reality, but not in the ways investors expect. With markets repricing and capital competing for attention, investors may need to rethink where resilience and opportunity lie. 

Economy

Are we in a recession?

What if the warning signs are already everywhere? From supermarket aisles to company failures, investors are being bombarded with recession signals. But most face a different risk that can be just as dangerous for portfolios. 

SMSF strategies

Meg on SMSFs - Division 296 actuarial certificates

The tax bill might be yours, but the event that caused it may not be. A key Division 296 calculation can sometimes attribute earnings in ways that many SMSF trustees won't instinctively expect or fully appreciate.

Property

The first impact of negative gearing reform is not the tax bill

Negative gearing changes formally begin in 2027, but the first consequences may already be here. A subtle shift is quietly influencing who can borrow, how much they can access and which property strategies still stack up.

Economy

The oil market is running out of easy answers

The biggest threat to markets may not be what investors are watching. The numbers have stopped adding up and supply is harder to measure, with forecasts becoming simple guesses. A more fragile reality is being masked.

Investment strategies

The state of investor knowledge in Australia

Australians are investing more than ever, yet a surprising divide is emerging between those building wealth effectively and those making costly mistakes. Surprisingly, the gap has little to do with income, age or starting capital.

Taxation

Complexity and capital gains

A case study shows that the ‘30% minimum CGT’ is a poorly conceived tax that adds significant complexity to an already over-complex system. A less complicated model would create a much fairer progressive tax scale.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 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.