Scottish Mortgage (LSE: SMT) shares have had a torrid run over the last two years. In November 2021, the trust’s share price was above 1,500p. But today we’re looking at a price of around 680p.
I will be sticking with my holding in the trust, however. Here’s one reason why.
The next big growth story?
When people think of Scottish Mortgage’s holdings, the chances are, they think of the likes of Tesla, Amazon, and Tencent – all of which drove the share price higher when growth stocks were on fire a few years ago.
Now, these stocks certainly have a lot of potential in the long run.
However, there’s one company in the Scottish Mortgage portfolio that I’m far more excited about.
And that’s Space Exploration Technologies or ‘SpaceX’ – the space company founded by Tesla CEO Elon Musk.
An unlisted, private company (meaning retail investors can’t invest in it directly), it has a weighting of around 4% in the trust’s portfolio.
A holding with huge potential
The reason I’m excited about SpaceX is that the company is a major player in the satellite broadband space.
Today, nearly 40% of the world’s population still doesn’t have access to the internet. In remote areas of the world, coverage is often very thin.
Satellite broadband can help fix this. Given that it doesn’t require any ground-based infrastructure, it’s the ideal solution.
Now, SpaceX offers a satellite broadband service called Starlink and is already having a lot of success with this.
For example, just last month, a major global shipping company announced that it will be installing Starlink on its fleet of 300-plus containerships so that those at sea can stay connected at all times.
But realistically, the growth story here is still in its infancy.
Scottish Mortgage notes on its website that it’s excited by the potential to “unlock enormous opportunities” in global internet connectivity via the Starlink service.
Space could be a $1trn industry
It’s worth noting that analysts at Morgan Stanley believe the global space industry could generate revenue of more than $1trn by 2040, up from around $350bn in 2020.
And it reckons satellite broadband is likely to represent 50% of the projected growth.
“We believe the largest opportunity comes from providing internet access to under- and unserved parts of the world, but there also is going to be increased demand for bandwidth from autonomous cars, the Internet of things, artificial intelligence, virtual reality, and video,” wrote analyst Adam Jonas recently.
This helps to explain why SpaceX already has a valuation of around $150bn (roughly the size of HSBC – the FTSE 100’s third largest company).
I’m sticking with it
There are a few other reasons I’m happy to stick with my holding in Scottish Mortgage.
One is that I like a lot of the firms it invests in. For example, I’m bullish on companies like semiconductor equipment maker ASML, AI chip designer Nvidia, e-commerce powerhouse Shopify, and payments company Adyen.
Another is that the trust is trading a massive discount to its net asset value (NAV). At present, the discount is about 15%. This essentially means that I’m getting exposure to all these great companies at a double-digit discount.
Of course, there’s no guarantee that the trust’s share price will rebound any time soon. The investment environment has changed a lot now that interest rates are much higher than they were.
Taking a long-term view, however, I reckon the trust has a lot of potential.
