The S&P 500 has risen around 8.2% so far in 2023. Meanwhile, the tech-heavy Nasdaq Composite has surged nearly 17%. In the UK, the growth-oriented FTSE 250 is up 13% in six months.
All this leads me to believe that the next bull market may be just around the corner. So I’ve been thinking about which growth stocks to buy for that scenario.
Of course, nobody really knows where the market is heading next. As billionaire investor Ray Dalio cautions: “He who lives by the crystal ball will eat shattered glass.”
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But at some point, there will be another bull market. And I think these two stocks will outperform when it arrives.
114 years of resilience
The aim of Scottish Mortgage Investment Trust (LSE: SMT) is to identify and invest in “the world’s most exceptional growth companies.”
It has made large gains from both Tesla and Nvidia, the two best-performing US stocks over the last decade. So it has a great track record.
Here are the trust’s top five investments, up to 31 March.
| Portfolio weighting (%) | |
| Moderna | 8.6% |
| ASML | 8.0% |
| Tesla | 5.1% |
| MercadoLibre | 4.5% |
| Space Exploration Technologies (SpaceX) | 3.5% |
But it has some issues today. SpaceX, the rocket enterprise founded by Elon Musk, is a private company. And one concern is that the trust recently breached its 30% quota of unlisted assets as the value of its listed holdings collapsed.
Being close to this limit restricts its ability to provide follow-on funding to some of its smaller holdings, which is clearly far from ideal.
As a result, the shares now trade at a 20% discount to the net asset value (NAV) of the trust. That looks like a bargain to me, so I’ve been scooping up shares recently, with a view to holding them for a very long time.
I think it’s worth noting that Scottish Mortgage has endured tougher times than this in its 114-year history. For example, its portfolio lost 68% of its value in the 1970s and 78% during the Great Depression.
On both occasions it recovered and went on to make shareholders money. I think it will do the same again this time.
Mega-projects
Ashtead (LSE: AHT) is a plant hire firm operating in the UK and North America. It rents out cranes, generators, diggers, forklifts, and more.
The stock has performed incredibly over the last two decades. In 2003, it was trading for pennies. Today, it’s at £46.85!
However, the shares have fallen 27% since reaching £64 back in November 2021.
The reason is that around 80% of the company’s revenue comes from the US, and there’s fear that the world’s largest economy could dip into a recession this year. That would impact the construction industry, and presumably Ashtead’s earnings.
However, I reckon the company’s long-term growth story remains intact. It should benefit directly from a construction boom already under way in the US where a massive $1.2trn bill has been passed to upgrade the nation’s infrastructure.
Plus, the Inflation Reduction Act offers billions in clean energy incentives for companies there. And finally, there’s the CHIPS Act, which is bringing semiconductor production back to the US from the East.
These mega-projects should create substantial demand for construction equipment. As such, I’m loading up on Ashtead shares as soon as I have the cash ready.
