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How to scout out hidden tech gems



Market-leading tech giants are transforming the way we live, work and shop (Photo : Capital Group)

Market-leading tech giants are transforming the way we live, work and shop (Photo : Capital Group)

Today’s biggest tech companies – the infamous FAANGs (or GAFAMs) – dominate the market. But they aren’t the only ones innovating in digital. Equity Portfolio Managers Anne-Marie Peterson, Greg Wendt and Lara Pellini tell us which other sectors investors should explore to unearth hidden tech gems.

Market-leading tech giants are transforming the way we live, work and shop. So it’s no surprise that they’ve been the primary focus of market attention for a number of years, and that this attention has resulted in lofty valuations for the so-called FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks.

Their dominance has also drawn the attention of government regulators, which may have some investors feeling uneasy. The good news is there are other places to look for technology-leading companies. Across industries as diverse as food service, luxury goods, heating and farming, companies are adopting new technology, in particular to improve their competitive positions. “Today all companies are tech companies – or, in other words, today, no company can operate without technology,” says Anne-Marie Peterson. “Established, sleepy industries and companies are using tech to transform their businesses in compelling ways, creating significant investment opportunities.”

Today all companies are tech companies – or, in other words, today, no company can operate without technology,
Anne-Marie Peterson

Anne-Marie PetersonEquity Portfolio ManagerCapital Group

Companies around the world are investing heavily in a digital future Capital Group

Companies around the world are investing heavily in a digital future Capital Group

Interested in learning more? Further data and analysis by Anne-Marie Peterson, Equity Portfolio Manager at Capital Group, is available here.

Industrials: Cooling carbon emissions

Mention carbon emissions, and the first thing most people think of is cars. But the largest contributor of greenhouse gas emissions is actually buildings. Building operation and construction worldwide accounts for 38% of global carbon output. The main culprits are inefficient heating, ventilation and cooling (HVAC) systems. “Shifting energy priorities among governments and the public could be a tailwind for HVAC companies that can quickly develop and introduce cleaner systems,” explains Peterson. “Carrier Global, for instance, has developed a system to help optimize a building’s total energy usage.”

Heavy equipment: Shifting gears toward clean energy

Construction and mining equipment-maker Caterpillar is seeking to be a leader in global sustainability. It has introduced a hydrogen/diesel engine that can help users of its equipment achieve their carbon emissions goals, along with a hybrid land-drilling system. Similarly, Deere & Co. has developed technological solutions to empower farmers to improve their efficiency.

Distribution: Targeting an omnichannel future

Despite claims that Amazon’s rising dominance has sounded the death knell for traditional retail, in-person shopping is far from over. Today, leading retailers are recognizing that a key to survival is adopting an omnichannel approach (incorporating brick-and-mortar stores with an online presence and a “clicks-to-bricks” model, where customers buy online and pick up at the store). “The most successful retailers are offering a uniform customer experience across across all their digital and physical channels,” says Greg Wendt. “This is a major change in how retailers work.”

The most successful retailers are offering a uniform customer experience across across all their digital and physical channels. This is a major change in how retailers work
Greg Wendt

Greg WendtEquity Portfolio ManagersCapital Group

After suffering a massive data breach, Target embraced technology to survive, hiring a team of 4,000 IT employees to improve Target’s e-commerce offering and develop its customer loyalty program.

Luxury goods: Taking online shopping upmarket

Luxury goods maker LVMH (whose many brands include Louis Vuitton, Tiffany & Co. and Sephora) was slow to embrace e-commerce, concerned that a shift to digital business could dilute its brands’ image of exclusivity. For LVMH, the additional challenge was to develop a seamless omnichannel experience across all its brands. The company established an in-house retail lab to support each brand in its digital transformation, adopted a digital tool to track goods through its supply chain, and began using order management technology. Some of LVMH’s brands also adopted artificial intelligence to customize online experiences. “E‑commerce was disruptive for a lot of retailers, but it turned out to be a positive for LVMH, whose brands have maintained their appeal,” says Lara Pellini.

E‑commerce was disruptive for a lot of retailers, but it turned out to be a positive for LVMH, whose brands have maintained their appeal
Lara Pellini

Lara PelliniEquity Portfolio ManagersCapital Group

Restaurants and food service: Cooking up a killer app

Hard hit by the pandemic, many restaurants filed for bankruptcy or went out of business. The ones that survived had to do their best to adapt. Thanks to its forward thinking, pizza delivery giant Domino’s was able to come out ahead despite the challenging situation. Months before anyone ever heard of COVID, it had launched innovative new services like contactless delivery and set up its own online ordering system across all digital platforms. And with the introduction of GPS order tracking and “zero-click ordering”, the innovations keep on coming.

The bottom line for investors

Innovation goes far beyond the tech sector. For investors, the key is to fully understand a company’s digital strategy and its prospects for success. “At Capital Group, we dig a little deeper across all industries to find companies under the radar with the potential to benefit from a digital transformation,” says Greg Wendt.

Interested in finding out more? Contact us!