Some FTSE 100 shares continue to yo-yo in value, based on conflicting economic newsflow, but others just can’t stop rising.
Today, I’m looking at one example of the latter that rarely grabs the headlines but has now stormed to a 52-week (and all-time) high.
Hiding in plain sight
The company is global information-based analytics and decision tools provider RELX (LSE: REL). A veritable beast of a business, the £55bn-cap has customers in more than 180 countries around the world.
In the last 12 months, its value has jumped well over 30%. Meanwhile, the top-tier index has moved ‘just’ 12% higher.
One explanation for this is the excitement surrounding AI. Indeed, broker Goldman Sachs just raised its target on the stock to 3405p, based on its belief that the ongoing application of tech across the company will boost revenue and increase its competitive advantage over rivals.
At the time of writing, the shares change hands for almost 500p below this price.
However, investors should not assume this form is only recent. Actually, the stock was on a roll long before the unveiling of ChatGPT (arguably the moment when AI really began to make investors salivate).
Quality stock
In the near term, no one truly knows where a share price is going. However, I can think of a few arguments for buying RELX today.
Back in July, management said underlying growth rates in revenue and adjusted operating profit were likely to “remain above historical trends” going forward. If this is borne out in the Q3 trading update on 19 October, the price could keep climbing.
More generally, RELX already has a lot of the things I’m looking for. In addition to high margins, it regularly generates great returns on the money it invests in itself.
This sort of thing helps a business to compound in value over time and, ultimately, makes investors wealthy. No wonder star fund manager Nick Train remains heavily invested.
For those who like passive income, it also has a great track record of hiking its dividends. To me, this alone points to a strong, stable and well-run company. The only snag is that the projected yield is just over ‘only’ 2%, or so — noticeably lower than I’d get from holding a bog-standard FTSE 100 tracker.
All in the price?
I’m not completely bullish though. Having done so well, the valuation looks increasingly rich (and possibly stretched) compared to the whole market. A price-to-earnings (P/E) ratio of 26 for the current financial year suggests there’s little room for error. With higher expectations comes a greater risk of disappointment.
And while I am bullish on the long-term prospects for investing in AI-related stocks, I’m also conscious it could be a rollercoaster ride in the interim. As a consequence, I’m still committed to maintaining a diversified portfolio.
My verdict
RELX’s popularity feels justified and I’m not confident enough to fight against the market and predict the recent momentum is about to reverse.
For now though, I’m happy to be invested via a few funds rather than hold the shares directly. If we do get a sudden drop in the price, my finger might just be hovering over the ‘buy’ button.
