Key points:
- Scottish Mortgage shares have fallen 24.2% in 2022 but may have bottomed.
- The fund has significant exposure to growth stocks that are facing challenges.
- We could see SMT shares rally to the 1100p to 1200p levels soon.
- However, a rally back to SMT’s all-time highs will take longer.
The Scottish Mortgage Investment Trust PLC (LON: SMT) share price has fallen 24.2% in 2022 and seems ready to make a comeback given its recent rally. So should investors buy the stock? Read on to find out if SMT shares should be part of your stock portfolio or whether you should stay away from the investment fund entirely.
Also read: The Best Financial Stocks to Buy Right Now.
The good news for investors is that the fund seems to have bottomed this month, as seen on the daily chart below. The move higher was driven by a recovery in tech stocks such as Tesla Moderna and Nvidia, to which SMT has significant exposure.
SMT has since reclaimed the 1000p level and seems to have run out of steam recently as the bulls take a breather. However, for those wondering whether SMT will trade near their all-time highs of 1566p reached in November 2021, the short answer is that we might have to wait a bit longer before SMT can reach these highs.
As an investment fund, SMT holds many tech stocks operating in a challenging environment characterised by rising inflation and interest rates that make it challenging to raise cheap capital to fund their growth.
Unlike mature tech companies such as Microsoft, Alphabet and Facebook, which generate boatloads of cash, most growth stocks are not very profitable; hence, they rely on cheap loans to grow their operations and attract new customers. Therefore, most growth companies are struggling in the current economic environment.
Another factor weighing on Scottish Mortgage shares is the fund’s exposure to Chinese companies, given the current tensions between China and the United States. The tensions could lead to the delisting of many Chinese companies such as Tencent, Alibaba and Nio from US stock exchanges, denying them access to the largest stock market globally.
All these factors could derail a rally in SMT shares going forward. Moreover, going back to inflation, the record-high inflation across many countries, including the US, UK, and Europe, has left consumers with less disposable income. As a result, it could affect discretionary purchases such as tech products, new cars and other products made by growth stocks.
Therefore, while we cannot rule out a further rally in growth stocks that would lift SMT shares higher, we can confidently say that it will take a while to reclaim its all-time highs. However, we could get another rally once the current sideways price action ends, with the following targets being at the 1100p and 1200p levels.
*This is not investment advice. Always do your due diligence before making investment decisions.
The Scottish Mortgage share price.
The Scottish Mortgage share price has fallen 24.2% in 2022 but could be staging a comeback. Is it a buy?
