Top UK fund manager Nick Train doesn’t buy shares lightly, so when he does take a position in a FTSE 100 stock, it’s worth paying attention. Especially when it’s a stock you already admire.
Train is best known as being one half of the successful Lindsell Train fund manager partnership, along with Michael Lindsell. He also runs one of the most successful investment trusts in the equity income sector, Finsbury Growth & Income Trust. This has returned 55% in the last five years, mostly from FTSE 100 stocks, against just 1.3% across its benchmark.
Last week, Train announced a new holding, data and credit-checking specialist Experian (LSE: EXPN). This is the third new position he has initiated in the last year, “an unusually high rate of actionable new ideas for Lindsell Train!”. This from a man who views Warren Buffett’s famous saying “our favourite holding period is forever” as alarmingly short-termist.
Train dives into the Experian share price
Train says FTSE 100 stocks have underperformed for some time, and this is throwing up some great opportunities. I happen to agree with him.
Interestingly, he says he’s been criticised for owning too many “expensive growth companies”, leaving his fund vulnerable if value or cyclical stocks outperform. After Covid-19, he thinks the reverse is the case, and he needs to hold more expensive growth companies. That’s exactly what Experian is.
Right now, the Experian share price trades at a pricey 37.63 times earnings. That fact alone would be enough to put many investors off. However, there’s a reason for that. The Experian share price is up a whopping 169% over the past five years, at a time when the FTSE 100 fell around 10%.
While it crashed in March along with most other FTSE 100 stocks, it has staged an impressive recovery, climbing 57% since the low point of 23 March. Experian may be an expensive growth company but, for a moment or two back there, it was relatively cheap. That’s why we always urge Fool users to buy top FTSE 100 stocks in the middle of a crash.
I’d buy this expensive FTSE 100 stock
Train was persuaded to buy Experian by colleague Madeline Wright, who said it offers exposure to a world-class technology company that owns “rich, unique and valuable data”. Train says its reports are critical to the credit-granting decision process, and its customers (mostly banks) have a 90% renewal rate.
The cost per report is low at just one or two dollars, so there’s little incentive for either the big three credit agencies to launch a price war, or for a fourth player to enter. In any case, assembling the data will take them too long.
Train says the biggest risk is a data security breach, but points out that Equifax rival suffered one, and got through it in decent shape. Experian is a top FTSE 100 growth stock. One shouldn’t expect much income, as its current dividend yield is just 1.2%. It’s expensive, but that’s often the case with top technology stocks like this one.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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.