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After increasing 66% in the last five years, it may seem strange to describe Scottish mortgage (LSE: SMT) as disappointing. But that depends partly on the time period one looks at. If you had bought the shares at their November 2021 high, for example, you would have seen Scottish Mortgage's share price fall a painful 42% so far.
The first half of this year appears to have brought renewed optimism around stocks. So far in 2024, they have increased 13%.
While that's good, I see some reasons to believe the stock could grow further from here. Below are three.
1. stocks are trading at a discount.
Every day Scottish Mortgage publishes its net asset value, basically the breakup value of its holdings. The share price has recently been at a discount of around 11% to this value.
If the stock simply closes part of the gap between the price it sells for and its intrinsic value, the price could rise.
That said, some of the trust's investments are in stocks that do not trade on a public stock exchange and therefore do not have a clear daily share price, such as SpaceX. Therefore, its real value could be lower than the estimate, although it could still be higher.
<h2 class="wp-block-heading" id="h-2-strong-position-in-ai“>2. Strong position in ai
Look at the list of its holdings that the Edinburgh-based investment fund publishes regularly and you'll see that two of the three largest positions are claimed by NVIDIA and AMSL. Together, those growth stocks represent 15.9% of the value of the trust's portfolio.
That could be seen as a risk. Nvidia this week became the most valuable publicly traded company in the world. If its shares fall, I expect that to negatively impact Scottish Mortgage's share price.
However, viewed from a more positive angle, the holdings show that fund managers identified the potential of the ai giants before many other investors.
If the lucrative ai chip market continues to grow, Scottish Mortgage's ownership of such shares could help boost its own share price.
3. Proven strategic approach
In recent years, some investors have worried that the retirement of a former trustee could mean the end of the trust's glory days.
For an actively managed investment trust, there is always the risk that poor investment decisions could lead to value destruction, not value creation.
But I believe Scottish Mortgage's clearly articulated investment strategy, focused on growth opportunities, could continue to work well in the future just as it has in the past.
Using that strategy to identify emerging areas of industrial or consumer demand, look at companies that can benefit from them and choose those with the greatest appeal could help the trust identify more blockbusters like Nvidia. If that happens, I think it will be good news for the Scottish Mortgage share price.
At the current price, if I had extra money, I'd be happy to use some of it to buy the stock.
