It has been an up-and-down five years for Scottish Mortgage Investment Trust (LSE: SMT) shares. The stock hit incredible form in 2020, rising over 100% in a year where trillions were wiped off the stock market.
Yet since going on to reach an all-time high in November 2021, it seemed like the Baillie Gifford trust had lost its momentum.
But up 42.1% in the last 12 months, its share price is on the rise again. What’s better, I reckon Scottish Mortgage has a lot further to go. Here’s why I think investors should consider buying the stock.
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Interest rates
There are a few factors I see pushing the FTSE 100 trust higher in the months and years to come.
The first is interest rates. In the Bank of England’s most recent meeting on 9 May, it decided to maintain the base rate at 5.25%.
However, Governor Andrew Bailey said he was “optimistic that things are moving in the right direction”. As such, market spectators now expect the first cut to occur around August.
This will benefit Scottish Mortgage given its heavy weighting to growth stocks. In high rate environments, these stocks struggle. Their growth is often fuelled by debt. When rates are high, this debt becomes more difficult to pay off.
As such, investors deem these sorts of companies too risky to hold. That’s largely why Scottish Mortgage has struggled since 2021.
But with it looking likely we’ll get two rate cuts this year, and more in 2025, this should provide its share price with a boost.
Share buybacks
The second factor is the recent £1bn share buyback scheme it announced, which is the largest ever investment trust buyback programme in absolute terms.
The aim of it is to narrow the trust’s discount to its net asset value (NAV). So far, it’s working. From around 14% in mid-March, its NAV has narrowed to 6% today.
On 8 May, Scottish Mortgage bought back £311m worth of shares. That should help provide its share price with more momentum going forward.
But even with the trust aggressively buying its own shares, it’s still trading at a discount. As a result, I think the stock could be a savvy buy while it still looks undervalued. As it cracks on with the programme, that may not be the case for much longer.
The risks
Like with all investments, there are a few risks I see with Scottish Mortgage.
I like its tech-heavy focus, but that makes it prone to volatility should that sector experience a downturn.
While it’s trading at a discount to its NAV, I must also consider that 26.2% of its holdings are private companies. While that allows me to access opportunities that I can’t access myself as a retail investor, valuations for these companies can often be difficult to determine.
I’d still buy
But even so, I’d still buy Scottish Mortgage shares If I had the cash. Its investment strategy aligns with mine. I buy for the long term.
In the last decade, Scottish Mortgage has risen by over 400%, proving it’s capable of strong returns. Therefore, I’m content with some volatility along the way.
At £8.84 a share, and down over 40% from its all-time high, I think Scottish Mortgage could be a shrewd buy.
