Over recent months, many tech-focused stocks have been hit hard during market corrections. Rising interest rates and inflation are among some of the factors causing this dynamic. The Scottish Mortgage (LSE:SMT) share price has also plummeted, but is it now a bargain? Let’s take a closer look.
Price movements and a trading discount
It’s quite clear that this investment trust has been caught up in recent market sell-off. Over the past year, the shares are down 43% and they’ve fallen 31% in just the past three months. They currently trade at 715p.
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
Baillie Gifford, the asset manager running Scottish Mortgage, says it’s run with a five-year timeframe in mind. To that end, I’m not particularly stressed about recent share price action.
In fact, this could provide the perfect opportunity for me to scoop up some shares at a low price. By referring to the net asset value (NAV) — the value of Scottish Mortgage’s underlying holdings — I could be getting a bargain.
The NAV is currently 823p. Based on today’s share price, the stock is trading at a discount of just over 13%. This indicates that the market may have overdone the sell-off of these shares.
However, with a gloomy economic outlook, it’s possible that this downtrend may simply continue.
Geographical diversity and problems in China
On the other hand, there are many things that attract me to Scottish Mortgage. It would provide me with exposure to a number of companies, both listed and unlisted, like Tesla and SpaceX.
I could also gain geographical diversity, because it has holdings in businesses from the US to China.
In addition, the skill and confidence of the fund managers was shown when they made vaccine-manufacturer Moderna the largest holding towards the beginning of the pandemic.
All of these factors make buying the stock very appealing to me, combined with the fact that it holds some of the world’s biggest and best-known firms.
That said, an issue is that it has invested heavily in Chinese tech stocks Alibaba and Tencent in recent years. Continued pandemic lockdowns in China have had a disastrous impact on supply chains and production. The problems have been particularly acute in the tech city of Shenzhen, in the south of the country.
If China eventually eases these measures, which it should, I think Chinese element of Scottish Mortgage’s holdings may start to perform well again. There’s a risk, though, that these issues persist and potentially worsen.
Overall, buying Scottish Mortgage shares isn’t without its risks. Being very tech-focused, the share price could continue to slide due to the current economic climate. That said, it’s trading at a discount and, given the diversity it provides, I’ll be buying some shares with a view to holding them for the long term. I’ll just have to hope I’m buying the dip!