Portfolio manager Nick Train is regarded as one of the UK’s top stock pickers. Over the long term, his UK equity fund (Lindsell Train UK Equity) has beaten the FTSE 100 index by a wide margin.
Recently, an investor asked Train: “Which of your holdings really has the potential to double or treble profits over the next decade or more and, as a result, become a much bigger market capitalised company and higher share price?”
Here are two FTSE 100 companies he highlighted in his response.
Data is the new oil
First up is RELX (LSE: REL). It’s a global provider of information and analytics for professional and business customers.
I can see why Train believes this Footsie stock has a lot of long-term potential.
In the years ahead, businesses around the world are increasingly going to turn to data and analytics services to drive productivity.
And RELX is likely to be a major beneficiary of this trend.
Today, its databases house over 40 petabytes of information. If data is the new oil, as they say it is, this company is akin to a huge gushing oil well.
Now, this stock has had a strong run recently. Boosted by excitement around artificial intelligence (where the company is very active), it has risen more than 30% over the last year.
If sentiment towards tech stocks were to deteriorate, we could see some profit-taking here (there has been a little bit of this recently).
Taking a long-term view, however, I agree with Train that this stock has a lot of room for growth.
I’m personally considering buying it for my portfolio.
Amongst the large-cap holdings in the fund, it is readily conceivable that RELX and Sage have transformative profit potential ahead.
UK fund manager Nick Train
The opportunity to scale up
Next, we have Sage (LSE: SGE). It’s a leading provider of cloud-based accounting and payroll software.
Again, I can understand why Train is excited about this stock.
Today, there are still millions of businesses across the world that haven’t digitised and become more sophisticated about things like payments and payroll.
So, there’s a real opportunity for the company to ‘scale up’ over the next decade as businesses undergo digital transformation.
One thing that should help the group here is its high level of profitability. With a five-year average return on capital employed (ROCE) of around 16%, there should be plenty of profits to reinvest for future growth.
It’s worth pointing out that Sage does have quite a high valuation today. Currently, its price-to-earnings (P/E) ratio is about 30. So, if an economic slowdown resulted in lower revenue and/or profit growth in the years ahead, the stock could be volatile.
I’m backing the company to perform well over the long term though given the ongoing digital transformation trend. Currently, Sage is my 10th-largest individual stock holding.
