Scottish Mortgage attracted many investors in 2020 with its 105% rally amid tough market conditions. And over the past decade, it has been a top performer. Yet this year has seen investors desert the trust as issues such as inflation continue to pressure investor confidence.

However, I think the large decline the trust has seen in recent times actually presents me with an opportunity to add Scottish Mortgage shares to my portfolio. Let’s find out why.

Why is SMT down?

After its solid performance in recent times, why has Scottish Mortgage seen such a drastic fall?

To start, it has a large weighting to growth stocks. The trust has holdings in firms such as Tesla. And with global inflation continuing to spike, it will have a detrimental impact on these firms. This is because to combat rising inflation, interest rates are rising. As such, the high levels of debt these companies have to fuel growth will become more difficult to pay off. On top of this, rising inflation tends to see many investors switching their investments to ‘safer’ value stocks. Combining these two factors, it’s easy to see why the share price is falling.

As well as this, Scottish Mortgage also has a substantial focus on tech stocks. This includes holdings such as Nvidia and Amazon. While tech stocks have surged in price over the past few years, they’ve struggled more recently.

SMT opportunities

Despite this, I still think Scottish Mortgage shares would be a strong addition to my portfolio.

Firstly, the above are short-term issues. Management is keen to note that the trust focuses on returns over a five-year period – using the FTSE All-World Index as a benchmark. And while past performance is no guarantee of future returns, the past five years have seen Scottish Mortgage return 92% to shareholders. The trust is also hardened to challenges, such as the 2008 financial crisis. And while such crises have had an instant impact on shareholder returns, in the long run investor’s patience has paid off.

With this said, the departure of James Anderson from the helm could provide to be an issue. After all, he was key in navigating moves such as the investment in Tesla in 2013 when it was trading for just $6. The loss of his eagle eye could have negative impacts on the Scottish Mortgage share price.

It’s now run by fund manager Tom Slater who also played a part in the trust’s rise over the past years. So, despite Anderson’s departure, I believe the capable hands of Slater will be able to keep the trust heading in the right direction.

Why I’m buying

While Scottish Mortgage may face some immediate issues, the trust has proved that over time it can deliver healthy returns to shareholders. I believe its weighting in growth stocks should pay dividends over the long term. And with cheap ongoing charges of just 0.34%, I deem cut-price Scottish Mortgage shares a solid addition to my portfolio.

The post Here’s why I’d buy Scottish Mortgage shares today! appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Meta Platforms (NASDAQ: FB) share price fell off a cliff yesterday. That came as a less-than-encouraging quarterly report alarmed already-battered tech investors. Revenue in Q1 is expected to be somewhere between $27bn and $29bn, rather than the $30bn expected by analysts. The number of active users also declined, a first in the company’s 18-year history. 

Should I be using this weakness as an opportunity to load up on the owner of Facebook, WhatsApp and Instagram? Like the relationship status on some of its users’ home pages, “it’s complicated“.

Meta share price: is the reaction overdone?

In certain respects, I think the reaction is too extreme. A fall from 1.93bn to 1.929bn active users in the last three months of 2021 is nothing to worry about, I feel. But the market reaction suggests Facebook’s growth is history. That strikes me as somewhat ludicrous.

In reality, I expect the company will adapt and overcome, as any good business does. Meta owns a staggering amount of data and information on users that it can then sell to advertisers. It also remains a hugely profitable business.

Like him or not, founder Mark Zuckerberg isn’t going anywhere either. At just 37, this isn’t the first challenging period faced by Meta’s chief and it won’t be the last. For me, the Cambridge Analytica scandal in 2018 was far more concerning. Even the best stocks miss earnings targets now and then.

Reasons to be fearful

This isn’t to say the company doesn’t face substantial challenges going forward. Some or all of these could put further pressure on the Meta share price. 

The popularity of rival apps such as TikTok and Alphabet-owned YouTube will certainly be playing on owners’ minds. The introduction of the App Tracking Transparency Policy by fellow tech titan Apple is another potentially huge headwind. Yes, the so-called metaverse being created by the company could be the solution to both problems. But this will take time to develop and cost billions of dollars in the process. 

And if all of this weren’t enough, there’s the much-discussed rotation into value stocks in 2022. Investors become rattled over the prospect of quicker-than-expected interest rate hikes are leading this. Meta may get back on track in the next quarter. But wider market sentiment could still delay a recovery. The mere whiff of increased regulation won’t help.

I’m a buyer (sort of)

On balance, I’m inclined to think Thursday’s movement in the Meta share price was another example of stock market myopia. A good company doesn’t become a bad one in three months. Being able to look further ahead than a few weeks is one of the few, very powerful, advantages I have over professional investors whose careers are on the line.

I’m perfectly content to increase my exposure to the company via quality-focused funds such as Fundsmith Equity and LF Blue Whale Growth rather than buy the stock directly. This strategy may reduce my gains in the event of Meta making a strong recovery. But it’s much easier than trying to time my entry when growth stocks are being hammered across the board.

The post The Meta share price has crashed. Here’s what I’m doing about the earnings bombshell appeared first on The Twelfth Magpie.

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• Are Meta shares at the start of a comeback?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Fundsmith Equity and LF Blue Whale Growth. The Motley Fool UK has recommended Alphabet (A shares) and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Chinese diversification

I have mentioned on numerous occasions in the past about the diverse exposure that this investment trust offers, but here I want to look specifically at SMIT’s Chinese equity allocation. As of July, nearly 20% of its portfolio was invested in Chinese securities. As the fastest-growing economy in the world, for me, this is a huge pull factor when buying the trust. The pandemic has in part fuelled tech-industry growth as we became more reliant on technology for everyday life, and China now hosts a vast array of opportunities in this sector. I can only see the growth of tech stocks accelerating. And as these mature, a rise in this investment trust’s share price is likely, I feel. As the US is also a base for many tech firms, the fact SMIT has near 40% of its portfolio invested in the US is another reason why I deem it a must-buy for me.

However, this also comes with issues. The Chinese market has been volatile of late. This may scare investors off from buying SMIT. With its top holdings including Tencent, Alibaba, and NIO, this makes it susceptible to the recent pressure applied by regulators. While this may pose an issue for some, for me it doesn’t. Fund managers James Anderson and Tom Slater employ a long-term investment strategy. The aim of the fund is to beat the FTSE All-World Index over a five-year period. Potential short-term issues shouldn’t be a major concern, I believe – and SMIT’s track record proves this to me.

Anderson departure

Scottish Mortgage is losing a key figure in April next year, as Anderson recently announced his intention to step down. Having run the fund for 22 years, his experience could be a huge loss. He’s generated huge returns over the years, most notably playing a role when deciding to invest in Tesla back in 2013. At the time, the stock was trading for just $6!

Although I have highlighted issues, I still deem this trust as a strong player in my portfolio. Anderson’s departure will be a blow, but the fund is still in the capable hands of current co-manager Tom Slater, along with Lawrence Burns who will become deputy manager.

The Chinese crackdown may also be a concern. Yet potential short-term volatility may not be an issue over a longer timeframe. SMIT has seen a 350+% return for investors over the past five years. For comparison, the FTSE 100 Index is up 5%. I think the focus on China will bear fruit in years to come as the country’s economy continues to grow. And, therefore, I think now is a great time for me to add more shares of this investment trust to my portfolio.

The post Why I think this top investment trust is a must-buy for me appeared first on The Twelfth Magpie.

More reading

• As SpaceX stock plunges below its opening price, is it time to dump Scottish Mortgage shares?
• An AI beast just racked up 80-fold growth and is now a top holding in this FTSE 100 trust
• SpaceX doesn’t pay a dividend. So how come it may help these investors earn passive income?
• Scottish Mortgage shares are now even cheaper after SpaceX’s amazing stock market debut!
• Most Britons miss out on the first 20 years of investment compounding. Here’s how a Junior ISA or SIPP can change that

Charlie Keough owns shares of Scottish Mortgage Investment Trust and NIO. The Motley Fool UK owns shares of and has recommended Alibaba Group Holding Ltd. and NIO Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A tech stock with recurring revenue

Craneware (LSE:CRW) is a software-as-a-service (SaaS) business that collaborates with US hospitals and other healthcare providers. Using its platform clients can quickly identify the true underlying costs of treating specific patients. Simultaneously, it also exposes any inefficiencies that once removed, lead to margin improvement.

As a result, hospitals can manage patient billings and expenses more effectively while also further mitigating any compliance risks.

The platform is a modular system that has 17 different solutions. Clients pay to access the modules they need through fixed contracts that typically span three to nine years. Needless to say, that’s quite a financial commitment, so it’s very reassuring to see that contract renewals are on the rise.

The fact that clients are willing to renew a contract for up to nine years indicates that the platform has become an essential tool, granting Craneware substantial pricing power. At least that’s what I think.

The risks of investing in AIM shares can be high

As previously stated, AIM shares are already exposed to a higher risk level than other listed stocks. And Craneware has the additional challenge of navigating one of the most highly regulated industries in the world – the healthcare sector.

The tech stock’s platform is still subject to patient care regulations as it is indirectly involved with health centres’ day-to-day operations. These restrictions do create barriers to entry for rival firms. But there are already other companies that offer similar services. Any breach could have a significant impact on the firm’s reputation that would undermine its strong pricing power and likely lead to client loss.

Another threat comes in the form of cyberattacks. The data being used on Craneware’s platform is especially sensitive (patient files, medical histories, insurance policies). Any breach in security that exposes personal data could also hurt its reputation and could lead to a rapid decline in contract renewals.

A cheap tech stock in hiding

The stock’s P/E ratio today is nearly 50. That’s hardly what I would call cheap. But a closer inspection reveals a different picture.

When a client pays upfront, Craneware doesn’t recognise the revenue in a single chunk. Instead, it is broken up and recorded over the length of the contract. The income statement for 2020 reported that total revenue was $71.5m. But there is an additional $200m that will be earned from existing clients, and new planned subscriptions over the next three years.

Source: Craneware Annual Report 2020 

With a net profit margin of 24%, if we include the additional $200m revenue, that would indicate a total profit for 2020 of $65m. At today’s price, this places the P/E ratio at 9. Now that looks like a cheap tech stock that I’d want in my own portfolio even with the added risk from AIM Shares. Especially since US healthcare spending is expected to reach $6trn by 2027. 

The post AIM shares: 1 ‘cheap’ tech stock I’d buy today appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Craneware. The Motley Fool UK has recommended Craneware. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.