Is it time to buy tech-heavy Scottish Mortgage shares?

Scottish Mortgage shares have lost nearly half of their value over the past year. But is the share price turning a corner?

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Scottish Mortgage Investment Trust (LSE:SMT) shares have been on a downward track this year. The trust, which was one of the UK’s most successful, has been hammered as investors moved away from tech stocks.

Scottish Mortgage has significant exposure to American, Chinese and unlisted shares, and focuses on tech and growth stocks. And its falling share price reflects a drop in the share prices of the stocks it owns.

While it certainly looks cheaper now, I’m still cautious on Scottish Mortgage. This basically comes down to my opinion on the stocks it owns. For example, SMT’s top three holdings make up around 20% of its portfolio, but I wouldn’t buy any of them individually right now. Here’s why!

Moderna

Moderna delivered a lifesaving vaccine during the pandemic, but that’s its only commercial product. In fact, it may be a while before it has another and I expect demand for its Covid-19 vaccine to fall considerably over the next few years.

What troubles me about Moderna’s valuation is unless it unveils a new product, which is commercially successful, or there’s a new more deadly Covid variant, its revenue will drop considerably. Some forecasts suggest revenue could fall 90% to $2bn in 2024.

I appreciate it’s well positioned to bring out a new Covid vaccine, and its tech could help treat other diseases, but, there’s also a lot of risk here. I still think Moderna is overvalued.

Tesla

Tesla certainly looks more attractive at the current price. However, it trades will multiples considerably in excess of its peers.

Despite Tesla’s well-publicised fall, the stock still has a price-to-earnings ratio of around 120. This means, at its current rate of profitability, it will take 120 years for the firm’s earnings to cover the value of its shares.

It’s price-to-sales revenue is also considerably in excess of peers such as NIO. The Chinese electric vehicle (EV) maker has a P/S ratio of just 5.5, versus Tesla’s 13.5.

But I also think Tesla will see competition in the EV market from established car manufacturers. Even MG has an EV offer, and it’s vastly cheaper than Tesla’s cheapest vehicle.

ASML

ASML Holdings is the world’s leader in making chip-fabrication equipment. Once again, I appreciate that future profitability forms a large part of the valuation, but this stock does look rather expensive.

It has a P/E ratio of 40. That’s certainly not cheap and is considerably more expensive than many semiconductor manufacturers. And while there is considerable demand for its lithography machines right now, ASML doesn’t have the capacity to fulfil orders.

One big positive is that ASML is leading the tech in this sector and lithography technology is protected from China by the Wassenaar Arrangement. China, which is a world leader in hard tech production, is still a long way behind.

Will I buy SMT stock?

I’m certainly cautious on SMT stock, but the further it falls, the more attractive it becomes. While I’m not optimistic about its three biggest holdings, it has a track record of picking winners. It may already have the next big growth stock somewhere in its portfolio.

I don’t intend to buy SMT any time soon, but I may change my mind if it falls further. It might be a good one for my Self-Invested Personal Pension.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

James Fox owns shares in NIO. The Motley Fool UK has recommended ASML Holding and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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