If someone had asked me to compile a list of the best FTSE 100 growth stocks a week ago, it would almost certainly have included data specialist RELX (LSE: REL). That’s a stock I’ve wanted to buy for years. Is this my moment?
My list might also have included software provider Sage Group, plus credit reference agency Experian and educational publisher Pearson. All have performed so well for so long, I thought I’d missed the boat.
I felt the same about London Stock Exchange Group. Its price had plunged 25% in a year, so I dived in and bought its shares on three separate occasions last autumn. I thought I was getting in at a bargain valuation. Now all five have gone haywire, including my LSEG stake.
Blue-chips, red blood
It’s that wretched AI again. Investors suddenly fear large language models such as Anthropic’s Claude could destroy their business models.
This concern isn’t new. It first hit when ChatGPT arrived. Why would companies pay for data-driven services when AI could do the same job for so much less? RELX quickly calmed nerves, claiming it could turn AI to its advantage by embedding the technology in its offerings. Markets relaxed. Until now.
RELX is the worst hit. It’s down 27% in the last month and 44% over 12 months. Experian has fallen 24% in the last month, with Sage down 18%, and LSEG and Pearson off 15%. Over a year, they’re all down roughly a third. It’s a sectoral bloodbath.
At The Motley Fool, we like to take advantage when quality companies tumble through no fault of their own. But falling shares aren’t automatic buys. They could fall a lot further.
Markets are torn. Yesterday these stocks rallied, today they’re sliding again. RELX, at the centre of the storm, is down 5%. I’ve been waiting for this moment but I’m wary.
Volatile time to buy shares
I’ve bought other good FTSE 100 companies on bad news, notably Diageo and JD Sports Fashion. Almost three years, and I’m down around 20% on both. I’ve learned that the initial piece of bad news, a profit warning in these cases, can open the floodgates to more misery. It’s the same story with LSEG. And I think that’s a risk with the software and data sector today.
Let’s be clear. I still love buying troubled stocks, but I wait until the early dust settles. Turning them around can take time.
Fund manager Nick Train, who’s gone big on this sector via his Finsbury Growth & Income Trust, has slammed the sell-off as “indiscriminate, arguably even a panic”, noting AI programmes like Claude still rely on these businesses’ data. RELX, LSEG, and Sage have even launched share buybacks to take advantage of volatility.
I think there’s a strong chance he’s right, but here’s the problem. The uncertainty will linger. Investors will continue to fear AI disruption, panicking every time a new application is launched. In the long term, I think these companies should be fine. AI makes constant howlers and I don’t think business customers can rely on it to replace what RELX and the rest provide, but that doesn’t mean suspicions will vanish.
That RELX P/E has plunged from almost 35 to less than 19. But I’d still think very carefully before considering the shares in the current madness.
