I have been looking for cheap shares I can add to my ISA. One I like the look of right now is Scottish Mortgage Investment Trust (LSE: SMT).
If I had spare cash to invest in my ISA at the moment, I would happily load up on it.
Is it really cheap?
Every business day, the investment trust publishes its net asset value. It has been trading at a sizeable discount to its net asset value lately.
Indeed, the trust explicitly justified its recently announced plan for a share buyback of at least a billion pounds on the basis that it would like to close the gap between its share price and the net asset value.
In reality, though, valuation is a subjective business.
Scottish Mortgage owns publicly traded shares like Tesla and NVIDIA, the market price of which can easily be ascertained. However, market price and value are not necessarily the same thing.
It also holds stakes in a variety of unlisted companies such as SpaceX. There, valuation is to some extent a matter of judgement.
Why I think it looks cheap
But while I think the Scottish Mortgage share price’s current 9% discount to net asset value makes it cheap, what really excites me here is the long-term potential of the trust’s investment in companies it reckons have strong growth prospects.
We know from the trust’s track record in picking shares like Tesla and NVIDIA that it has been well ahead of the curve before when it comes to identifying compelling growth stories.
In the past year alone, the Scottish Mortgage share price has shot up 30%. Over five years, the price gain has been an impressive 70%.
But in the stock market, past performance is not necessarily an indicator of what will happen in future. So, is this still potentially a cheap share when considering what could come next?
On one hand, the rapid price rise of shares the trust owns like NVIDIA means that if they now give up some of those gains, the Scottish Mortgage share price could suffer too.
On the other hand, Scottish Mortgage offers me exposure to dozens of different companies in areas of the global economy its trust managers think look set for growth.
If they are right, it might still be the sort of cheap share I would like to scoop up.
Why I’d buy
That involves some element of judgement, although the same is true to some degree for any investment.
Scottish Mortgage publishes its holdings regularly for all to see. I think its selection of both listed and unlisted companies offers good exposure to a geographically diverse range of firms mostly focused on growth opportunities such as the digital economy.
Not all will succeed. But if even a few do well enough, Scottish Mortgage’s current price makes it look like a cheap share to me.
If I had spare cash to invest I would happily buy it for my portfolio at the moment.
