Scottish Mortgage Investment Trust (LSE:SMT) shares haven’t been good to investors this year. The stock is currently trading for around 700p, down from highs over 1,500p towards the end of 2021.
I had been very reluctant to touch Scottish Mortgage this year. That’s because this fund is heavily weighted towards growth and tech stocks, and its share price reflects the value of the stocks it holds.
Despite the collapse of growth and tech stocks at the start of the year, for a long while I still saw them as overvalued.
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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 Scottish Mortgage for my ISA.
Here’s why!
A beaten-down portfolio
Scottish Mortgage has significant exposure to American, Chinese and unlisted shares. But many of its top holdings are household names, including Moderna and Tesla.
A year ago, Moderna traded for nearly three times what it does now. And Tesla is down around 40% on its high (though up 8% in the last 12 months).
The fall experienced by these two firms is reflective of the correction across growth and tech stocks.
Other top-10 holdings include Tencent, Nvidia, Amazon and Illumina. All of these stocks have performed very poorly over the last year.
Scottish Mortgage’s 10th-largest holding is French fashion conglomerate Kering. It’s the only non-tech stock to feature in the top 10. It has also underperformed over the past 12 months.
Attractive valuations
As share prices fall, metrics such as price-to-earnings (P/E) and price-to-sales (P/S) fall too. Growth stocks typically trade with higher P/E and P/S ratios because they’re valued on future earning potential.
In recent weeks, the valuations of growth stocks have become much more attractive. For example, Moderna’s P/E ratio has fallen as low as four. That said, the biotech stock isn’t the perfect example as investors are concerned about revenue generation after Covid-19.
Tesla’s P/E has fallen to around 90, having been more that double towards the end of last year.
A track record of picking big winners
Scottish Mortgage has an impressive record of picking the next big winners. It bought stocks like Moderna and Tesla before most people had even heard of them.
The stocks that might send the Scottish Mortgage share price soaring in the future may already be in its portfolio. The thing is, we just don’t know who the next big winners are going to be.
I’m particularly keen on Chinese EV manufacturer NIO. The stock appears in the top 20 Scottish Mortgage holdings. The firm is on a similar growth curve to Tesla, and its unique battery-swapping technology makes it a genuine competitor to Tesla’s dominance, in my opinion.
Other big winners could come from biotech. Scottish Mortgage also holds stocks like Denali Therapeutics.
So at 700p a share, I’m looking to buy and hold Scottish Mortgage for the long run.
