Many investors see Tesla shares as a no-brainer buy. But the risk of buying a stock on a price-to-earnings (P/E) multiple of 100 scares me. That’s partly why I bought Scottish Mortgage (LSE: SMT) shares.
The investment trust owns shares in Tesla. But it also diversifies across a lot of other technology-based growth shares, too. Many of those have plunged in price recently, as the tech-heavy Nasdaq index hit a bear market.
My timing is usually terrible. But this time I was lucky to buy close to the 2022 low point. Well, the low point so far anyway.
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As the Scottish Mortgage share price started to climb again, I thought I might have missed an opportunity to buy more at a cheap price. But it’s declined again, in line with the Nasdaq. And that means its creeping up my buy list once more.
Holdings
Some of its holdings look cheap to me, including Moderna. Its stock soared during the pandemic. But it’s fallen back a good way over the past 12 months, and looks like an attractive long-term buy to me now.
Do I want more shares in an investment trust that has 8.3% of its cash in Moderna? I think I do.
Buying Scottish Mortgage shares also gets me a portion of ASML, the semiconductor technology specialist. ASML shares have been on a slide for about a year now. Would I be happy owning a chunk of an industry with solid long-term growth characteristics? Well, yes.
I could go on, and I could look at Illumina, Amazon, and all the other growth stocks held by Scottish Mortgage investment trust.
Tracker
But in a way, the trust acts similarly to a Nasdaq index tracker. So I reckon the overall valuation of the index is the best way to get a feel for the value of Scottish Mortgage.
At 31 August, the Nasdaq was on a P/E of approximately 25. And I see that as undemanding for an index containing some of the world’s biggest growth companies.
The current valuation is slightly below its five-year average. And it’s way below the highest valuation reached over the past five years, when the Nasdaq peaked at a P/E of over 60 in 2017.
Discount
If the tech stock index is worth buying now, then why choose Scottish Mortgage shares to get a taste? I see another extra in its current share price discount.
When prices are falling, an investment trust’s shares will often trade at a discount to the underlying value of its assets. At the moment, the Scottish Mortgage discount is up to 11% again. So not only might I get some growth stocks on good valuations, I could also be paying 11% less than their market value for them.
If Nasdaq weakness should continue, then that discount could widen and Scottish Mortgage could fall even further. And the Nasdaq P/E was down as low as 16 in early 2020. So there’s risk, for sure.
On balance, though, I’d definitely buy more Scottish Mortgage shares to hold for the next decade.
