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He Scottish Mortgage Investment Fund (LSE:SMT) share prices have not enjoyed the rally that FTSE 100 has. Indeed, while UK blue-chip stocks are soaring, the technology-based trust has recently plunged to its lowest level since late December.
Are investors making a mistake here? After all, the trust trades at a steep discount to the sum-of-its-parts value.
The shares are currently trading around 710 pence per share. This is a 19% discount on a net asset value (NAV) per share of 875.11 pence, a record at the end of January.
Falling stock prices of key technology holdings such as Modern and ASML that NAV will also have gone down in February. However, the spread between the Scottish Mortgage share price and the NAV is likely to remain significant.
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I’m a big fan of investing in value stocks. And like billionaire investor Warren Buffett, I’m a big believer in buying stocks when their value falls. This can be an effective route to building wealth in the long run.
However, Scottish Mortgage is a stock I am not willing to buy for my own portfolio. Simply put, I would not buy many of the businesses that the trust currently owns. And that’s because I think a lot of these stocks continue to trade at unattractive valuations.
The Covid-19 pandemic has accelerated the digitization of our daily lives. Issues like the rise of flexible working and the rise of e-commerce, for example, have led to speculation that demand for semiconductors will skyrocket.
But I think the frenzied investor interest in tech stocks has discounted earnings expectations unrealistic. Some forecasts also appear overly optimistic, as the slowdown in the global economy reduces consumer spending. Recent trade data underscores how far-fetched investor assumptions have become.
big disappointments
Silicon Valley Darlings Alphabet and Apple They are among the latest tech giants to post disappointing results.
Sales at Google and YouTube owner Alphabet rose just 1% in the fourth quarter, the company announced earlier this month. Consequently, both revenue and profit fell well below estimates. Meanwhile, Apple’s earnings missed estimates for the first time since 2016. Weak iPhone sales caused fourth-quarter sales to fall 5%, he said.
Other rounds of sharp job cuts have also worsened the pessimism across the sector. computer manufacturer Dell video conferencing giant Zoomfor example, they have announced plans to cut 5% and 15% of their respective rosters in recent weeks.
The news flow does not suggest a healthy tech sector. And there’s no sign of when the unsettling streak of releases will come to an end. Scottish Mortgage’s share price could fall much further.
The verdict
The world is becoming increasingly dependent on technology. And some of the companies owned by the 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 region could soar as personal wealth levels soar.
But the huge valuations of many tech stocks are enough to encourage me to invest elsewhere. I prefer to buy other shares of the FTSE 100 today.
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