Data is rapidly becoming one of the most valuable resources in the world today. As such, I have been looking for companies that have an edge in the data market to add to my portfolio. There are a handful of stocks in the FTSE 100 that appear to have these qualities. Here are three stocks that I would buy for that reason today.
FTSE 100 growth stocks
The first stock is credit rating agency Experian (LSE: EXPN). This firm has an edge in the financial data market. It provides credit rating information for millions of consumers and financial services companies.
This is a business where reputation matters. Experian has been building its reputation over the past few decades, as well as its vast bank of data. It would be virtually impossible for a competitor to create the same kind of competitive advantage in a limited amount of time.
The London Stock Exchange (LSE: LSEG) has a similar competitive advantage. It is known worldwide for being one of the globe’s top stock exchange operators. It also owns a significant stake in the European clearing and financial data markets.
In both of these markets, scale matters. The firm’s customers want access to a wide range of information, and the FTSE 100 group can provide that. Many other organisations cannot. At the same time, clearing is a high-volume, low-margin market. Only large companies have the economies of scale to make this business profitable.
Relx (LSE: REL) also has a scale advantage. Its businesses provide scientific, technical, medical and legal information as well as analytics. Customers will only pay for these services if they have the whole picture. No one would bother if the company only had a limited volume of information available on its platforms. This is its advantage. The FTSE 100 firm’s scale also helps draw in data, which only reinforces its competitive advantage.
As long as all of these companies continue to invest in their products and services and do not take their growth for granted, they should remain data champions. That is why I would buy all three FTSE 100 stocks for my portfolio today, although these are not risk-free investments.
The most significant challenge all three organisations face is data security. The number of cyber attacks on companies around the world is growing exponentially. Firms with extensive data collections are valuable targets.
Indeed, a few years ago, Experian’s US peer Equifax suffered a significant data breach. It was fined by regulators and had to compensate consumers. If any one of the three companies outlined above suffered the same fate, it might have a significant financial and reputational impact on the business. It could also significantly impair their competitive advantage.
As such, while I am positive on the outlook for all three to companies, I will remain alert to the threat of cyber attacks against the businesses.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian and RELX. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.