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At Scottish Mortgage Investment Trust (LSE:SMT) share price has yet to enjoy a broader rally FTSE 100 already. In fact, while UK blue-chip stocks rose, technology-based confidence recently fell to its lowest level since late December.
Are investors making mistakes here? After all, trust trades with a meat discount for the value of the sum of the parts.
The shares currently trade at around 710p per share. This is a 19% discount to the net asset value (NAV) per share of 875.11p recorded at the end of January.
The sinking stock prices of major technology holdings like Modern and ASML would have pulled that NAV lower in February, too. But the margin between Scottish Mortgage’s share price and NAV will remain significant.
Discarded values
I’m a big fan of investing in value stocks. And like billionaire investor Warren Buffett, I’m a firm believer in buying stocks when prices fall. This can be an effective route to generating long-term wealth.
However, Scottish Mortgage is a part that I am not ready to buy for my own portfolio. In summary, I wouldn’t buy many businesses that I trust right now. And because I believe many of these stocks continue to trade at unappealing valuations.
The Covid-19 pandemic has accelerated the digitization of our daily lives. Themes like the rise of flexible working and the e-commerce boom, for example, have fueled speculation that demand for semiconductors will explode.
However, I believe that the frenzied investor interest in tech stocks has priced in unrealistic earnings expectations. Some forecasts also appear overly optimistic, as a slowing global economy dampens consumer spending. Recent trading data confirms how high investors’ assumptions are.
big disappointment
Silicon Valley baby Alphabet and Apple is one of the latest tech giants to release disappointing results.
Sales at Google and YouTube owner Alphabet rose just 1% in the fourth quarter, the business announced earlier this month. As a result, profit and loss did not match the estimates. Earnings at Apple meanwhile missed estimates for the first time since 2016. Weak iPhone sales led to a 5% drop in fourth-quarter sales, it said.
A further round of severe job cuts also cast a gloom across the sector. PC manufacturers Dell and the video conferencing giant Zoomfor example, it has announced plans to cut 5% and 15% of its workforce in recent weeks.
The news flow does not indicate a healthy tech sector. And there’s no sign that the disappointing releases will end. Scottish Mortgage Inc. it may go down.
Verdict
The world is becoming increasingly dependent on technology. And some of the companies held by Scottish Mortgage Investment Trust will play an important role as digitization accelerates.
I also like the trust’s high exposure to China. Corporate profits in this area can rise as personal wealth levels balloon.
But the value of many tech stocks is enough to encourage me to invest elsewhere. I’d rather buy another FTSE 100 stock today.
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