What would you do if someone offered you pound coins for 83p each? Assuming they’re genuine, I’d buy as many as I could. And something like that is happening with Scottish Mortgage Investment Trust (LSE: SMT) shares right now.
What I mean is that the trust is trading on a 17% discount to its net asset value. So if I buy a Scottish Mortgage share now, the holdings it represents will be worth more than I paid.
And those holdings aren’t to be sniffed at.
Cheap Tesla
Is Tesla stock cheap after falling more than 50% from its 2021 peak? I think so. I can’t be alone in regretting a missed growth opportunity in the past. Well, now could get some at an extra 17% discount by buying Scottish Mortgage shares.
I do think the Nasdaq was getting a bit overheated, and that a correction was due. But seeing the size of the US growth stock crash, I reckon prices could have fallen well below the correct level.
Before I go further, I need to sound a caution. There’s a common mistake that we can easily make when we see a growth share fall in price.
Falling knife
We see it selling a lot cheaper than it used to, and we pile in. And then what happens? Yep, it carries on down. It’s easy to be cut trying to catch a falling knife.
How do we avoid such pain? For me, the answer is to forget the size of the fall. Ignore whatever chart pattern we see. Don’t even think about what might happen tomorrow, or next week…
No, it’s all about how a stock’s current valuation looks today, compared to how we rate its long-term potential. If I think I’m on a winner there, I can happily buy and then totally switch off from the share price chart.
So is Tesla now a buy, with earnings forecast to double by 2025? For my money, yes.
Chips
Semiconductor technology firm ASML Holdings is also held by Scottish Mortgage. In 2021, its stock was valued at a price-to-earnings (P/E) of nearly 50. Now, thanks to forecast earnings growth coupled with a price fall, we’re looking at half that by 2024.
Oh, I nearly forgot. It’s 17% cheaper than that for Scottish Mortgage investors.
Some, admittedly, might still be a bit high. Moderna, for example, is up more than 600% since 2019, despite these recent falls. And with no forecast profit, it’s hard to evaluate.
Growth investing
But that’s a risk any of us take if we invest in growth shares. There’s more uncertainty, and it’s usually harder to work out a rational valuation. That’s why I think a diversified spread held in an investment trust is a good way to go.
So would I rate Scottish Mortgage Investment Trust an actual no-brainer? Well, nothing in growth investing is, really.
But I don’t see anything that I think comes closer right now. Especially at that 17%-off sale price.
