Down 44%, shares of Scottish Mortgage finally tempt me!
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Scottish Mortgage Investment Trust (LSE:SMT) Stocks have not been good for investors this year. The stock is currently trading around 700p, down from highs of over 1,500p towards the end of 2021.
I had been very reluctant to touch Scottish Mortgage this year. This is because this fund is heavily weighted towards growth and technology stocks, and its share price reflects the value of the stocks it holds.
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Despite the collapse of growth and technology stocks at the start of the year, I still considered them overvalued for a long time.
However, I changed my mind after the June correction and added a limited number of Scottish Mortgage shares to my SIPP. But I’m also thinking of buying a Scottish mortgage for my ISA.
A battered wallet
Scottish Mortgage has significant exposure to US, Chinese and unlisted equities. But many of its major holdings are household names, including Modern and You’re here.
A year ago, Moderna was trading nearly three times what it does now. And Tesla is down about 40% off its peak (although up 8% in the last 12 months).
The fall suffered by these two companies reflects the correction in growth and technology stocks.
Other top 10 holdings include Tencent, Nvidia, Amazon and Illuminated. All of these stocks have performed very poorly over the past year.
The 10th holding of Scottish Mortgage is a French fashion conglomerate Kering. It is the only non-tech stock to make the top 10. It has also underperformed over the past 12 months.
As stock prices fall, measures such as the price-to-earnings (P/E) ratio and the price-to-sales (P/S) ratio also fall. Growth stocks generally trade with higher P/E and P/S ratios because they are valued on the potential for future gains.
In recent weeks, growth stock valuations have become much more attractive. For example, Moderna’s P/E ratio dropped to four. That said, the biotech stock is not the perfect example as investors worry about post-Covid-19 revenue generation.
Tesla’s P/E has fallen to around 90, after more than doubling towards the end of last year.
A history of selecting big winners
Scottish Mortgage has an impressive track record in picking the next big winners. He bought stocks like Moderna and Tesla before most people had even heard of them.
The stocks that could drive Scottish Mortgage’s share price higher in the future may already be in its portfolio. The thing is, we just don’t know who the next big winners will be.
I am particularly interested in the Chinese electric vehicle manufacturer NIO. The stock is among the top 20 Scottish mortgage holdings. The company is on a similar growth curve to Tesla, and its unique battery-swap technology makes it a real challenger to Tesla’s dominance, in my opinion.
Other big winners could come from biotechnology. Scottish Mortgage also owns shares like Therapeutic Denali.
So at 700p per share I am looking to buy and hold a long term Scottish mortgage.