Scottish Mortgage Investment Trust (LSE: SMT) shares have taken a hit. After a strong start to the year, the stock’s lost 5.5% of its value in the last month. While still up 2.9% year to date, that’s wiped out a large amount of the gain the trust had made this year.
While on the surface that may seem concerning, I think it could be an opportunity. After sliding, I reckon its shares now look like brilliant value.
With that in mind, I think now would be a smart time for me to add the FTSE 100 constituent to my portfolio. If I had the cash, I’d happily buy some shares today. Here’s why.
Discount price
Despite the trust posting a slight gain in 2024, it still looks cheap on paper. I say that because its shares are currently trading at a discount to their net asset value (NAV).
At the time of writing, it trades at a 10.6% discount to its NAV. That means, in theory, I can gain access to the companies Scottish Mortgage owns cheaper than their market rate.
That sounds like a good deal to me. Furthermore, some of the companies the trust has in its portfolio includes high-quality names such as Nvidia, Tesla, Ferrari, and Meta.
What I also like about the trust is the exposure it provides me to the artificial intelligence (AI) sector. The names above are proof of that. They’re some of the largest players in the growing sector.
Bouts of volatility
While I’m bullish, I see a couple of risks with Scottish Mortgage. For one, as we’re seeing right now, the stock has the potential to be volatile. That’s because it has a focus on owning growth stocks.
While these sorts of companies can produce blockbuster returns, their share prices can fluctuate. We’ve seen this recently with Nvidia, which in the last six months has climbed as high as $135.6 a share and fallen as low as $76.2.
On top of that, these sorts of stocks don’t tend to thrive in high interest rate environments. That’s due to the fact they’re often leveraged with debt to fuel growth, which becomes more expensive to pay off when rates are higher.
Rate cuts have begun in the UK and seem imminent across the pond. But a delay in future cuts could see its share price suffer.
The bigger picture
But as a long-term investor, I’m happy to ride some short-term volatility. That’s especially if I see the potential for handsome returns in the years and decades to come. With Scottish Mortgage I do.
That’s because the trust’s management team aims to “maximise total returns over the long run”. That approach aligns perfectly with my investment strategy.
While past performance is by no means an indication of potential future returns, the trust has posted an impressive 57.5% gain over the last five years. That’s a lucrative reward for loyal shareholders. By comparison, the FTSE 100’s climbed 12.6% during the same period.
This post was originally published on Motley Fool
