Strong trading

Revenue jumped 19.5% to £135.3m over the 27 weeks to the beginning of August following “strong trading.” As might be expected, a recovery in on-the-go consumption was seen as the UK emerged from its multiple lockdowns. New product launches also appear to have hit the spot. Barr’s Funkin brand of ready-to-drink cocktails logged growth of 150% as well. 

On a statutory basis, pre-tax profit rocketed 378.4% to a record £24.4m. Although this needs to be put in context, I take this as a sign the worst is most definitely over.  

Can this momentum continue?

The £600m-cap thinks it can. According to CEO Roger White, BAG is “on track to deliver strong full-year profit performance, slightly ahead of our 2019/20 pre-COVID level.” That last bit’s important. Beating last year’s numbers shouldn’t be a stretch, considering what was happening at the time. The real test is whether Barr is selling more drinks than it did the year before we were all told to stay behind our doors.

However, it’s the resumption of dividend payments that really makes me optimistic. This morning, it was announced that investors would receive an interim payout of 2p per share. That’s good in itself. However, BAG has also elected to pay holders a one-off special dividend of 10p per share. Such a move suggests real confidence on the part of management.

So why isn’t this growth stock rocketing?

Despite all this good news, shares in AG Barr were barely in positive territory early this morning. One explanation for this is that the company, like many others, is seeing “increased challenges” in its supply chain. Another could be BAG’s reflection that “a number of benefits” that supported profit growth in the first half would not be repeated.

There could be other reasons. Investors may be worried that sales at BAG may soften as the winter months arrive. Even if this isn’t the case, a resurgence in Covid infection levels could impact all stocks. 

For me however, these are short-term headwinds. Moreover, AG Barr’s reassuringly sound finances should allow it to weather any further storms. The £65.5m in net cash now on the balance sheet is just over 115% more than it had in its coffers this time last year.

Top-up opportunity

Having held the shares for a while now, I’m pleased to see that my patience in AG Barr is slowly being rewarded. If anything, today’s muted reaction gives me an opportunity to add more of this growth stock to my portfolio. A valuation of 20 times earnings still doesn’t seem excessive for a robust, quality company selling low-ticket items that people don’t think twice about buying.

I’m not the only one prepared to play the long game. Star fund manager Nick Train is the second-largest holder of the stock via his funds. If that’s not good company, I don’t know what is.

The post 1 UK growth stock to buy now appeared first on The Twelfth Magpie.

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Paul Summers own shares in AG Barr. The Motley Fool UK has recommended AG Barr. 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.

The share price of FTSE 100 stock and credit checker Experian (LSE: EXPN) was in fine form this morning. In fact, it’s now getting very close to setting a fresh all-time high. What’s behind this momentum and is it too late to buy in?

FTSE 100 top riser

Answering the first question isn’t all that difficult. Earlier today, the self-styled ‘global information services company’ released an encouraging update on trading.

Thanks to a quicker-than-expected recovery from the pandemic, total revenue grew 28% over the three months to the end of June once foreign currency movements were stripped out.  

Although the FTSE 100 firm did well in all regions, this was particularly evident in Europe, the Middle East, and Africa/Asia Pacific. Collectively, total revenue jumped 61% here. That said, it’s important to bear in mind that these markets were hit hard over the same period last year so a big number wasn’t a complete surprise. Moreover, this region still contributes a relatively small proportion to Experian’s total revenue. 

Elsewhere, more established markets, such as the US, were also performing well. Overall revenue growth of 26% was recorded across the pond following a “significant uplift” in its credit comparison marketplace. It would seem many consumers are wanting to take advantage of credit card companies becoming a little more flexible with their lending criteria. In line with the huge demand seen for cars recently, the company also said that its automotive insurance comparison marketplace was “expanding rapidly“.

In the UK, Experian said that it “returned firmly to growth” following its transformation programme.  

So, would I buy this growth stock today?

I think there could be reasons both for me to buy and to not buy the FTSE 100 stock today.

Reasons to make me think twice include the definitely-not-cheap valuation. Before markets opened this morning, Experian was trading at 31 times forecast earnings. This certainly doesn’t mean the shares won’t climb higher from here. However, it does suggest to me that a lot of good news is already reflected in the price. The risk here is that Experian disappoints at some point down the line and leaves my holding ‘underwater’.

Even if this doesn’t happen, some investors may choose to recycle profits made over the last 18 months or so into stocks offering more value. This could conceivably have an impact on the share price for a while. 

On the other hand, Experian’s outlook continues to be promising. Following today’s numbers, the company announced that it now expects revenue to grow between 13% and 15% in this financial year. Organic growth — that generated internally rather than through acquiring other businesses — is likely to come in between 9% and 11%. Couple this with consistently high profit margins and there’s definitely still reasons for me to be bullish on this FTSE 100 stock.

Bottom line

There’s no doubt in my mind that Experian is a high-quality company. It’s also one I think I could comfortably hold for years within my own portfolio. So, on balance, I’d be more inclined than not to buy this stock today. This is even though the price may soon hit a new record high. 

Paraphrasing star UK fund manager Terry Smith, it’s what companies do over the years that really has an impact on investor returns, not market timing. Sometimes, I think it’s wise just to pay up. 

The post This FTSE 100 stock could be about to hit an all-time high! Should I buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

Here, I’m going to discuss two FTSE 100 stocks that Train currently has large positions in. I’d be happy to buy both stocks for my own investment portfolio today. 

A FTSE 100 data company

The first FTSE 100 stock I want to discuss is London Stock Exchange (LSE: LSEG). It’s a leading global financial markets infrastructure and data company that provides capital markets services, data and analytics solutions, and post-trade services. This stock was the largest holding in Train’s UK Equity fund at the end of February.

London Stock Exchange’s share price has taken a hit this month. That’s because the group recently advised in its full-year 2020 results that it’s going to face higher-than-expected costs of £850m this year. The market didn’t like this news.

However, I think the share price fall is excessive. Overall, the full-year results were quite solid with revenue up 3% and adjusted earnings per share up 5%. Meanwhile, the company hiked its full-year dividend by 7% to 75p per share, which suggests to me management is confident about the future. The company also said it’s well-positioned for future growth.

It’s worth noting that since the share price fall, a number of board members have stepped up to buy stock. I see this as encouraging. After all, no one has more knowledge of a company and its prospects than its executives and directors.

Even after the share price rise, LSEG shares aren’t cheap. Currently, the forward-looking price-to-earnings (P/E) ratio is about 26. That valuation doesn’t leave a huge margin of error. If future growth is underwhelming, the shares could fall further.

Overall however, I think this FTSE 100 stock is attractive at current levels.

Strong growth

Another Train-owned FTSE 100 stock I’d buy today is Hargreaves Lansdown (LSE: HL). It operates the largest retail investor platform in the UK. This was the eighth largest holding in his fund at the end of February.

The last time I covered Hargreaves Lansdown, I noted that increased interest in investing and trading was benefiting the company. Over the six-month period to the end of 2020, the group added 84,000 customers and generated revenue growth of 16%. 

Encouragingly, the company is still enjoying strong growth. In a statement published recently, it said trading in January had been similar to previous lockdown periods with strong dealing volumes, significant engagement from clients, and robust net new client numbers.

Furthermore, it said it had continued to see elevated volumes of share dealing since the end of January. As a result, the group advised it now expects pre-tax profit for the year ending 30 June to be modestly above the top end of analyst expectations.

One risk that concerns me here is the threat of competition. Over the last year, rival Trading 212 has added a huge number of clients. This is something I’ll be keeping a close eye on. A P/E ratio of 26 also adds valuation risk.

All things considered however, I think this FTSE 100 stock offers a nice long-term risk/reward proposition. I’d buy it today. 

The post 2 FTSE 100 stocks I like owned by ‘Britain’s Warren Buffett’ appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in London Stock Exchange and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Recently however, the fund – which I hold in my investment portfolio – has underperformed. Last year, it only returned 11.7% when its benchmark – the MSCI World Index – returned 12.3% and rival Fundsmith returned 18.3%. Meanwhile, in 2019, the fund returned 19.4% while the index rose 22.7% and Fundsmith returned 25.6%.

Of course, these numbers are still good. A two-year return of 33% is very healthy. However, they’re below the benchmark and below other funds such as Fundsmith.

This begs the question. Should I hold on to Lindsell Train Global Equity or switch to another fund?

Why has Lindsell Train Global Equity underperformed?

To answer that question, let’s look at why the fund has underperformed. I can see three key reasons. 

Firstly, portfolio manager Nick Train has a very specific investment style. He only invests in what he considers to be ‘very high-quality’ businesses. Quite often, these are companies with powerful brands and a consumer focus.

This ‘quality’ approach to investing has worked very well, in general, for much of the last decade. However, like any style, it’s not going to work all the time. For example, recently we have seen a rotation into beaten-up value stocks. Train doesn’t hold these kinds of stocks, and this has contributed to the fund’s underperformance.

Secondly, Lindsell Train Global Equity is underweight in the tech sector compared to its benchmark. Train’s top holdings at 28 February were London Stock Exchange, Diageo, Nintendo, and Heineken. The top four holdings in the MSCI World, however, were Apple, Microsoft, Amazon, and Facebook. Over the last few years, Big Tech stocks have done very well. So, this has also contributed to the underperformance.

Finally, Train runs a concentrated portfolio – a risk I’ve warned about before. The fund holds less than 30 stocks. This approach can deliver great results when your stocks are outperforming. However, it can also backfire if your stocks are underperforming. That’s because stock-specific risk is higher.

Take London Stock Exchange for example – the top holding in the fund at the end of February. This stock recently fell from around £95 to £76. That 20% fall is going to impact Lindsell Train Global Equity significantly because the stock was about 7.6% of the fund at 28 February.

Lindsell Train Global Equity: my move now

While Lindsell Train Global Equity’s performance has been a bit disappointing lately, I am going to stick with this fund. Ultimately, I like Train’s investment approach and I like the holdings in the fund.

I also think it’s a great ‘sleep-well-at-night’ fund. While it may never deliver monster Scottish Mortgage-like returns, it’s also unlikely to crash 30%+ in the space of a month.

Having said that, the recent underperformance is a good reminder of the importance of diversification. When investing in funds, it’s sensible to spread money over different funds with different managers and styles.

So, while I’m going to hold on to Lindsell Train Global Equity, I am going to ensure I also hold plenty of other funds and stocks as well, to lower my overall portfolio risk.

The post Lindsell Train Global Equity is underperforming. Should I sell the fund? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Apple, Amazon, Microsoft, Scottish Mortgage Investment Trust, and Diageo and has positions in Fundsmith and Lindsell Train Global Equity. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon, Apple, Facebook, and Microsoft. The Motley Fool UK has recommended Diageo and recommends the following options: short March 2023 $130 calls on Apple, long January 2022 $1920 calls on Amazon, long March 2023 $120 calls on Apple, and short January 2022 $1940 calls on Amazon. 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.

Unilever share price: Groundhog Day?

Back in March, investors sold what they could to preserve their capital. As one of the biggest (and therefore most ‘liquid’) UK stocks, it was perhaps inevitable that a FTSE 100 juggernaut like Unilever would be sacrificed by so many in the stampede.

Even so, that sell-off was scary. From mid-February to mid-March, Unilever’s share price fell almost 20%! Despite riding the recovery wave like so many other UK stocks since then, it’s now sunk back to below the 4,000p mark. 

I can understand why this must be frustrating for committed ‘buy-and-hold’ investors, particularly those who began buying back in August 2019 when the Unilever share price had climbed to almost 5,200p. So, what’s going on?

Why has Unilever sold off again?

There may be a few reasons. Chief among these is how the company is currently trading. Put simply, Unilever’s recent set of full-year numbers fell short of analysts’ expectations. At a time when many consumer staple stocks are benefiting from multiple lockdowns, the £100bn cap is struggling to increase profits.

Another reason is that Unilever just isn’t a very exciting business. How could it possibly compete with the hype and noise associated with (temporary?) market darlings such as US electric car maker Tesla? To use another example, why would anyone leap at the top-tier giant when there are some UK stocks climbing 200% in just one week?

I get it — Unilever is boring, boring, boring. But that’s why I like it. Moreover, investment decisions should never be made on just a single year’s earnings, at least in my opinion. We need to look at the big picture.

Quality stock

In many ways, Unilever is still the great defensive company it’s always been. Here are a few attractions that jump out at me. 

• Consistently high margins and returns on capital
• A truly global player
• A reliable dividend payer
• Manageable levels of net debt
• Strong corporate governance and ‘green’ credentials
• A monster portfolio of brands/products that people repeatedly buy. 

The FTSE 100 has some great stocks and some truly awful laggards. Based on the above, Unilever is surely in the former camp.

Another option

Of course, no business is perfect. Unilever’s growth rate is admittedly sluggish (although I think the beauty division is destined to bounce back when lockdowns lift). Moreover, not every investor will want to own the shares directly due to their risk tolerance and/or investing horizon.

This being the case, a fund holding a substantial portion of its money in the FTSE 100 giant might be more appropriate. Clearly, there’s no shortage of candidates here. Star stock-picker Nick Train, for example, has 8.8% of his near-£6.5bn LF Lindsell Train UK Equity fund invested in the company. That’s a conviction holding if I ever saw one!  

Unilever share price: the bottom line

Unilever’s average price-to-earnings (P/E) ratio over the last five years has been a little under 21. Given that it now trades on just 17 times earnings, I think this stock could prove an absolute steal in time. The time to buy quality is when it goes on sale. This may be the case now with Unilever. 

The post The Unilever share price is struggling. I’d buy this FTSE 100 stock now! appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. The Motley Fool UK has recommended Unilever. 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.

Turnaround potential

Nick Train first purchased shares in Imperial Leather owner PZ Cussons (LSE: PZC) towards the end of 2019. The company’s valuation has climbed roughly 20% since. This morning’s interim results may not have added to the momentum but I do think they’re encouraging considering the troubles PZ has encountered in recent years. These include a challenging economic backdrop in Nigeria (a key growth market) and consumer uncertainty in Europe. 

As a result of the huge demand for hand wash and sanitiser, overall revenue rose 14.6% to just under £313m in the six months to the end of November. Reported pre-tax profit came in at £36.3m — 1.6% lower than over the same trading period in 2019 due to some one-off costs. 

For me, however, one of the big highlights of today’s statement was the reduction in net debt to £18.2m. Back in 2019, it stood at £137.7m. A further positive was the interim dividend being maintained. Yes, a gently rising dividend is preferable. However, I don’t think investors will be too disgruntled by the 2.67p per share cash return. Let’s not forget that many, far larger companies have had to halt their dividend payments entirely.

PZ is not a share for the impatient. In addition to uncertain trading conditions and higher costs, the new management team is also attempting to turn around key brands and simplify operations. This is a multi-year job and goes some way to explaining why the company remains a contrarian pick.

As a committed buy-and-hold investor, however, this is probably what attracted Nick Train. It also chimes with my own Foolish approach to investing, namely holding quality stocks for the long term. I don’t own a slice of PZ Cussons just yet, but today’s news does suggest to me that the worst could be over for those already invested. 

Ready to fizz?

Another one of Nick Train’s favourite UK shares (and mine) is IRN-BRU producer AG Barr (LSE: BAG).

Today, Barr said that revenue for the last financial year would now be somewhere in the region of £227m. That’s less than the £255.7m achieved in FY19/20. Nevertheless, it’s still “marginally ahead” of what the company had expected. Positively, the beverage-maker also thinks pre-tax profit will be higher than analysts had been predicting. 

“So, why aren’t the shares rallying?“, you might ask. Similar to PZ Cussons, at least some of this must be down to Barr’s foggy earnings outlook now that we’re back in lockdown. Talk of restrictions lasting until the summer could also be keeping a lid on investors’ enthusiasm for the stock. 

Not that I — or probably Nick Train — am concerned. Barr has £50m in net cash on the balance sheet. This should be enough to see it through to the other side. 

At 21 times forecast FY22 earnings, the shares aren’t cheap. Then again, this could turn out to be a reasonable price to pay later in 2021. Once the hospitality sector reopens, I think AG Barr could get its fizz back. 

The post I think these Nick Train-backed stocks will rally back to form in 2021 and beyond appeared first on The Twelfth Magpie.

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Paul Summers owns shares in AG Barr. The Motley Fool UK has recommended AG Barr and PZ Cussons. 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.

Today, I’m going to look at two stocks that Train currently holds in his UK fund. I’d be happy to buy both stocks right now. 

A top Nick Train growth stock

Let’s start with a stock Nick Train added to his fund last year – Experian (LSE: EXPN). It’s one of the major players in the consumer credit data space. Last week, it posted a healthy trading update in which it reported organic revenue growth of 7% for the quarter ended 31 December.

I see Experian as a good fit for my portfolio for a few reasons. Firstly, it operates in a growth industry. The market for data analytics is expected to grow at a healthy rate in the years ahead. Secondly, it has competitive advantage – Experian’s industry enjoys high barriers to entry. This means there’s less risk of rivals stealing market share.

Third, the company has a number of high-quality attributes. Return on capital employed, for example, has averaged 19% of over the last five years. This tells us that the company is very profitable. Additionally, it also has a fantastic dividend growth track record. Over the last five years, the dividend has been raised from 39 cents to 47 cents per share.

Experian shares currently trade on a forward-looking P/E of around 31 which means the valuation of the stock is relatively high. This does add risk to the investment case. If the company’s future financial results are disappointing, its share price could fall significantly. However, given EXPN’s high-quality attributes, and long-term growth potential, I’m not personally worried about the premium valuation. Overall, I see Experian as a good stock for me to buy and hold for the long term.

Long-term growth potential

The second Nick Train stock I’d buy today is Hargreaves Lansdown (LSE: HL). It’s a leading player in the UK retail investing space.

I’m bullish on this Train stock for a few reasons. Firstly, interest in stock picking has increased over the last year or so. Investors have realised that, by picking stocks, they can potentially make much higher returns than by simply investing in passive index funds, even though they can also potentially lose more. I think this renewed interest in stocks should benefit Hargreaves Lansdown.

Secondly, Britons have saved record amounts of money over the last year while on lockdown. I expect a considerable amount of this money to find its way into the stock market, which, once again, should benefit Hargreaves.

Third, stock markets tend to rise over the long run. Given that Hargreaves generates a large proportion of its income from assets under administration (AUA), there’s a good chance its income will increase over time from rising AUA. 

It also has quality attributes. It’s very profitable (five-year average ROCE of 74%) and has a strong balance sheet. It has also put together a good dividend growth track record.

However, like Experian, this stock does have a relatively high valuation. The forward-looking P/E ratio is 29, which again adds risk to the investment case. Overall though, I think the long-term risk/reward proposition offered by this Nick Train stock suits my investment goals.

The post 2 Nick Train stocks I’d buy for my ISA today appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Hargreaves Lansdown and Experian. The Motley Fool UK has recommended Experian and Hargreaves Lansdown. 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.

What’s fascinating about these two fund managers is they both employ very straightforward approaches to investing. It’s nothing that the average investor cannot replicate. With that in mind, here’s a look at how I plan to invest like Smith and Train next year.

Terry Smith and Nick Train focus on their best ideas

The first thing to note about Smith and Train is they take a ‘high-conviction’ approach to investing. Instead of owning hundreds of different stocks like some portfolio managers do, they only hold around 30 stocks each. In other words, they’re focused on their best ideas. I think this is a smart strategy. Personally, I own just over 40 stocks. Next year, I plan to reduce the number of stocks I hold slightly to focus more on my best ideas.

Big bets on top stocks

While Smith and Train each hold around 30 stocks, they don’t hold them in equal weights. Instead, they allocate more weight to the stocks they’re most bullish on. Smith, for example, has a large position in Microsoft. It’s currently about 7% of his portfolio.

Train, meanwhile, likes Unilever and Diageo. These two stocks represent about 16% of his portfolio. This is an approach I pursue as well. My top holdings going into 2021 include Apple (6% of my portfolio), Alphabet (6%), and Diageo (5%).

A focus on quality

Smith and Train also invest with a strong focus on ‘quality.’ Instead of buying cheap stocks, they look for companies with strong and sustainable earnings, high levels of profitability, and strong balance sheets.

It’s a similar approach to that of billionaire investor Warren Buffett. I think this is a great approach to investing and I’ve been focusing more on quality stocks in recent years. The results have been excellent. These kinds of stocks tend to deliver strong long-term returns while also protecting investors during periods of market volatility.

Powerful trends

It’s worth pointing out that many of the companies Smith and Train invest in are benefitting from dominant structural trends. PayPal, for example, which both fund managers own, is benefitting from the shift to digital payments. Diageo, another stock they both own, is benefitting from the global ‘premiumisation’ trend. I plan to focus my portfolio more on powerful trends in 2021.

The world’s best companies

Finally, one of the keys to success for Smith and Train is that they invest globally. While both own a handful of UK shares, they don’t restrict themselves to the domestic stock market. This opens a whole new world of attractive investment opportunities.

Some examples of top international companies found in their portfolios include make-up powerhouse Estée Lauder, diabetes specialist Novo Nordisk, entertainment company Walt Disney, and beverages champion PepsiCo.

I’ve been making my own portfolio more global over the last few years and the results have been fantastic. While the FTSE 100 has struggled, I’ve made big gains from the likes of Apple, Alphabet, Microsoft, and PayPal. In 2021, I’ll continue to invest with a global focus, in the same way Smith and Train do.

The post How I plan to invest like Terry Smith and Nick Train in 2021 appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Apple, Alphabet, Diageo, Unilever, Microsoft, and PayPal and also has positions in Fundsmith Equity and Lindsell Train Global Equity. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Apple, Microsoft, PayPal Holdings, and Walt Disney. The Motley Fool UK has recommended Diageo, Novo Nordisk, and Unilever and recommends the following options: short January 2021 $135 calls on Walt Disney, long January 2021 $60 calls on Walt Disney, and long January 2022 $75 calls on PayPal Holdings. 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.

At the time, Experian’s share price was hovering around the £30 mark and its forward-looking price-to-earnings ratio was close to 40. That was a little expensive for my liking. However, recently, Experian shares have pulled back to near £25 and the P/E ratio has been around 35, falling to 30 using next year’s earnings forecast. On the news of this pullback, I’ve added the FTSE 100 stock to my own portfolio.

Why I like this Nick Train FTSE 100 stock

There are a number of things I like about Experian. One is that, after collecting credit information on consumers for nearly 25 years now, the company has access to an extraordinary amount of data. In today’s data-driven world, the company looks well-positioned for success.

I also like the fact that the company is shifting from simply selling this data to selling it enhanced by decision tools. This strikes me as an excellent strategy. Nick Train believes the shift to decision tools is “what will drive substantial growth over the next decade.”

Additionally, I like the fact there are only a few players in the industry. This gives Experian a competitive advantage. This is reflected in the company’s financials. Over the last three years, return on capital employed – a key measure of profitability – has averaged nearly 20%. Meanwhile, over the last decade, Experian has doubled its dividend payout.

Growth is set to pick up

This year, Experian’s growth has been a little muted due to Covid-19 and the tough macroeconomic environment. Half-year results, posted on 17 November, showed organic top-line growth of just 2%. H1 benchmark earnings per share were also up just 2%.

Looking ahead however, performance is expected to pick up. For the year ending 31 March 2022, City analysts expect Experian to generate revenue of $5,670m. That’s about 8% higher than the expected revenue figure of $5,229m this year. Meanwhile, net profit for FY2022 is expected to come in at $1,053m, up 15% on the $914m figure expected this year.

It’s worth pointing out that in the group’s H1 results, management sounded confident about the future. “While Covid-19 has significantly impacted the macroeconomic environment, it has also catalysed trends which play to Experian’s strengths. Once the crisis abates, we believe we will be strongly positioned to take advantage of the secular growth trends and we are excited by the opportunities we see ahead,” said CEO Brian Cassin. That statement sounds quite positive, in my view.

Long-term growth story

Of course, this Nick Train-backed stock isn’t without risk. One key risk is the valuation. On a forward-looking P/E ratio of about 30, Experian shares aren’t cheap.

Another is the debt on the balance sheet. At 30 September, net debt was $3.9bn. The group ended the first half of the year with a net debt to EBITDA ratio of 2.2. This is something to keep an eye on.

Overall however, I think the long-term story here is attractive. I’m happy that this FTSE 100 technology stock is now in my portfolio.

The post I just bought Nick Train’s new FTSE 100 stock appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Experian. 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.

Look at things from a different perspective however, and this result isn’t quite so positive.

Nick Train has underperformed!

To properly measure just how good a manager is, it makes sense to compare ‘oranges with oranges’. Forget the FTSE 100. Train’s performance against rival managers adopting similar strategies is a better yardstick. 

It’s here there’s possible concerned. Terry Smith’s Fundsmith Equity fund, for example, has returned 17.2% in the last year. The promising LF Blue Whale Growth has achieved a stonking 24.1% gain over the same timescale. This is despite all three managers having concentrated portfolios of between 25-29 quality-focused stocks. This concentration matters because it means investors are relying more on the active stock-picking skills of the fund manager, and less on general market sentiment, to grow their wealth.

On this basis, Nick Train is really lagging his peers.

So, what gives?

There are arguably two main reasons to explain this underperformance. One is the geographical mix of Train’s holdings.

Unlike Fundsmith and Blue Whale, Train has a third of his portfolio invested in UK companies. However, Smith and Blue Whale manager Stephen Yiu have just 14% and a minuscule 3% exposure to London-listed stocks respectively. This matters, because the UK stock market hasn’t recovered as well as others around the world.

A second, related reason why Global Equity hasn’t done as well is due to the sort of companies Nick Train’s invested in. Consumer goods giant Unilever and premium spirit maker Diageo occupy the largest and third-largest positions in his portfolio. The share prices of both have recovered from March’s market crash but they’ve hardly set the world on fire.

By sharp contrast, both of Train’s peers have big stakes in US companies, such as Facebook, Microsoft and Paypal. Thanks to global lockdowns, these have thrived in 2020. 

Keeping the faith

I don’t think any of the above should matter to Foolish investors. A year is simply not long enough to judge whether a stock picker has lost his or her touch. Far more important is that Nick Train’s fund is up 122% in five years, handsomely beating his chosen benchmark: the MSCI World Index (developed markets).

I’m also inclined to think that many of Nick Train’s holdings will recover strongly (and potentially do better than those of rivals) in 2021. It’s unfathomable, for instance, that people won’t return to bars and pubs eventually.

As an aside, we also need to consider the possibility that the US market — which Fundsmith and Blue Whale are heavily exposed to — is now seriously overpriced. In spite of Brexit-related concerns, the UK market still looks reasonably valued.

Buying opportunity

I certainly wouldn’t rely on the skills of just one manager, even Nick Train, for growing my wealth (n.b. I hold all three of the funds mentioned). Nevertheless, I don’t see any reason to become concerned about the Global Equity Fund’s performance. In fact, I think now might be a great time for me to top up my stake!

The post Nick Train is underperforming, but I’m not worried appeared first on The Twelfth Magpie.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Lindsell Train Global Equity, Fundsmith Equity and LF Blue Whale Growth Fund.. The Motley Fool UK owns shares of and has recommended Facebook, Microsoft, and PayPal Holdings. The Motley Fool UK has recommended Diageo and Unilever and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and long January 2022 $75 calls on PayPal Holdings. 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.