But tech shares have had a well-documented rough ride for a while. And with its recent earnings report now missing analyst targets, the Amazon share price is down over 25% since the start of the year.

Do I smell an opportunity to buy?

I’ve been caught by catching the proverbial falling knife once before. Buying what seemed a bargain ended up being an expensive lesson.

So, before I get too excited about the drop in Amazon’s share price, what’s behind it?

First up – that earnings reports. Ok, it missed analyst expectations. But were they fair?

Amazon, along with others, benefitted hugely from the pandemic-driven change in behaviours. So, it seems to me, that expecting it to continue to over-deliver as the world slowly returns to some sort of normality is…..perhaps a little optimistic?

A more realistic view would be to compare like-for-like, i.e. to the same quarter pre-pandemic. And on this basis – Amazon has continued to perform.

Recent media focus has very much been on what’s gone wrong with Amazon. It’s more dramatic & ‘newsworthy’, I guess.

But there’s been far less focus on what’s gone right. Like, say, a huge increase in AWS (Amazon Web Services). Here, first-quarter operating income increased by 57% year-on-year. Hardly panic stations?

There may be trouble ahead…

So, the doom and gloom may be overdone. But I don’t want to ignore legitimate concerns.

E.g., for now, the bulk of Amazon’s income remains via its online sales. And I can see that major global competitors like Alibaba Group and Mercadolibre Inc. are going to potentially limit Amazon’s ability to expand into markets outside the US and Europe.

And there are those well-documented headwinds of cost of living, inflation, the ongoing war, and rising interest rates that are all going to present challenges to growth.

Tech stock of the future?

What I really like about Amazon is its vertical-integrated strategy approach.

Its diversified business model sees it investing all along its value chain. From renewable energy, logistics, cloud computing, the list goes on.

My personal favourite must be its latest exploit, with plans to launch 3,000 satellites over the next five years to build up its space-based internet business.

It may sound far-fetched, but this area of business is estimated to be one of the growth areas of the future. In fact, Morgan Stanley has put out estimates for the overall space industry forecast to be up to $1 trillion by 2040.

And whilst these predictions can be notoriously wide of the mark, it is undoubtedly a growth sector of the future. No wonder they want to compete with Elon Musk’s SpaceX here.

So, is now the right time to buy Amazon?

In my view owning a piece of Amazon is like owning several companies in one – it’s no longer a pure e-commerce play. And that’s something I like a lot.

As a long-term Foolish investor, I want to buy and hold shares of companies I think will play a major part in the future.

So perhaps, with share prices now back where they were two years ago, it might finally be the right time for me to add them to my growth portfolio.

The post Is now the ‘Prime’ time to buy Amazon? appeared first on The Twelfth Magpie.

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• Amazon stock falls while SpaceX soars – is this a buying opportunity?

Michelle Freeman does not own shares in any of the stocks 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, Apple, and MercadoLibre. 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.

Why are Scottish Mortgage shares falling?

As a quick reminder, SMT is a publicly traded investment trust that looks for strong businesses yielding above-average returns. It is managed by Baillie Gifford & Co, an Edinburgh-based investment management partnership.

I believe SMT shares have fallen, in recent months especially, due to its heavy focus on tech stocks. Tech stocks have been the hardest hit by macroeconomic and geopolitical issues currently occurring throughout the world. Soaring inflation and the tragic events in Ukraine have caused stocks to fall and a stock market correction to occur. SMT is one of a number of stocks to experience a share price drop.

So what’s the current state of play with the SMT share price? Well, as I write, the shares are trading for 941p. At this time last year, the shares were trading for 1,251p, which is a 24% drop over a 12-month period. In 2022 to date, Scottish Mortgage shares have dropped 29% to current levels.

Cheap but risky

The recent dip in SMT’s share price has made me consider adding the shares to my holdings. There is lots to like about SMT, in my opinion. It has been one of the best performing investment trusts in the UK for a long time. It possesses an excellent track record of picking quality stocks and providing consistent returns. I do understand that past performance is not a guarantee of the future, however. In addition to all this, the fallen shares look cheap right now.

Tech stocks have suffered due to soaring inflation and the ways in which central banks are dealing with it. The US Federal Reserve has decided to adopt tighter monetary policies to curb soaring inflation. Here in the UK, the Bank of England (BoE) has increased interest rates to combat the issue. How does this affect Scottish Mortgage shares you ask? Well, SMT’s tech-heavy portfolio has suffered. The issue is that expensive technology stocks are valued on future growth, not current performance.

My verdict

I can understand the appeal of buying cheap Scottish Mortgage shares. A consistent track record of performance, buying the dip, and holding for the long term could be a good strategy to see lucrative returns for my portfolio.

I do have some concerns with SMT’s portfolio and the businesses within it. Let’s take a look at its two largest holdings, Moderna and Tesla. Moderna rallied during the pandemic because of the Covid-19 jabs it created. Profit is set to drop substantially as demand for these jabs decreases, however.

Tesla surpassed the $1trn valuation mark last year. But when I look at performance and the balance sheet I’m not sure I can see a $1trn company.

I’ll avoid Scottish Mortgage shares right now. I’m still a fan of the stock but current macroeconomic developments as well as its focus on tech growth stocks is putting me off. I will keep a keen eye on developments, however.

The post Scottish Mortgage shares are down 29% in 2022! Should I buy now? appeared first on The Twelfth Magpie.

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• 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

Jabran Khan has no position in any of the shares mentioned. 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.

SMT’s success of late can be attributed to its tech-heavy weighting. The Last few years have seen these stocks soar, in turn boosting the trust’s share price. In 2020 alone it rose over 100%. However, a recent reversal in form for these stocks has seen the Scottish Mortgage price struggle. While it has seen a small revival this month — up 5% in March — year-to-date the trust is down over 20%.

So, should I be buying SMT shares as such? Let’s take a look.

Scottish Mortgage risks

One reason we’ve seen a fall in the Scottish Mortgage share price is due to the risks that come with the uncertain global economic outlook. Fast growth leading to global supply chain issues, as well as the tragic situation in Eastern Europe, is leading to fear among investors. As such, SMT has taken a hit.

On top of this, rising inflation is a further cause of concern for SMT. As inflation rises, for example in the UK, people tend to switch their money to ‘safer’ value stocks. Given SMT’s large weighting in growth stocks, it’s clear to see how the price of Scottish Mortgage shares can be adversely impacted.

The exposure the trust has to China may also be a short-term issue. Chinese equities have been volatile within the last few weeks. And this uncertainty may deter investors away from the fund.

SMT long-term outlook

With this said, I think volatile periods shouldn’t be of concern to investors. Management makes it clear that SMT invests for the long term, looking for significant growth opportunities along the way. The trust has experienced periods of decline in the past – for example, the 50% drop after the dotcom crash of 2000. But these blips haven’t impacted the gains seen over a longer period. The 600% return over the past 10 years is an achievement that very few investment trusts have managed, showing the strength of Scottish Mortgage.

As well as this, and as my fellow Fool Paul Summers highlighted, innovative companies – the sort that SMT’s managers like to invest in – offer optimism for the future due to their cutting-edge nature. These firms won’t suddenly stop innovating, perhaps counteracting the idea that placing money in value stocks during times like these is a better bet.

Should I buy?

Despite the issues we may see in the near future such as rising inflation and volatility within China, I think the long-term benefits SMT provides make it a buy for me. While past results don’t always reflect future performance, the 600% gain seen over the past decade is proof that patience is key. Regaining momentum following a dip earlier this month, I’d be willing to buy Scottish Mortgage shares today.

The post Should I be buying Scottish Mortgage shares? 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 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

With the shares well below the 900p mark, is now the right time for me to add this stock to my portfolio? Or should I be steering clear of the tech-heavy investment fund? Let’s take a closer look.

Understanding the Scottish Mortgage share price

The easiest way to explain the movement of the Scottish Mortgage share price is to take a closer look at its portfolio. While the fund has exposure to many industries, it is heavily weighted towards tech growth stocks. For example, its top 10 holdings include Nvidia (2.9%), Tesla (5.3%), and Tencent (4.9%).

Understanding why this was leading to rising share prices is tied with the broader macroeconomy. During the pandemic, central banks across the world lowered interest rates in an effort to prop up the economy. This led to increased stock market investment, as bond and savings returns declined. This pumped-up stock valuations, especially in high growth tech stocks, and hence the Scottish Mortgage share price soared as a consequence.

However, government spending and supply chain problems induced by Covid-19 have served central banks with a new problem – tackling rising inflation. For example, in the US, the annual inflation rate hit 7.5% in January. The way central banks tackle this is by doing the opposite of what they did in 2020 and raising interest rates. With rates on the rise, investors have been selling out of high-growth positions. Hence, the Scottish Mortgage share price has taken a beating.

What I’m doing now

There is no doubt that Scottish Mortgage is an excellently managed fund, regardless of current price moves. For example, over the past 10 years, it has returned 650% to investors. In addition to this, the fund prides itself on long-term growth, so perhaps I should be discounting this short-term volatility and adopting a broader outlook. In addition to this, it also allows me to have a heavily diversified portfolio of companies under one investment, which could help reduce volatility further down the line.

That being said, the short-term outlook for the Scottish Mortgage share price still worries me. On top of current inflationary pressures, the Russia-Ukraine conflict has led to increased supply concerns. For example, the price of oil has skyrocketed to $130. I expect this to negatively impact many of the businesses that Scottish Mortgage holds, and hence the shares could continue to slide below the current level.

Overall, although the shares could lead to some great long-term growth for my portfolio, I think the Scottish Mortgage share price has further to fall in the short term. Therefore, I will be waiting to add this stock to my portfolio.

The post Is the Scottish Mortgage share price a bargain under 900p? 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
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• 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

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

However, since then, the share price slowed down, with SMT rising just under 5% in 2021. And in fact, this year has seen the Scottish Mortgage share price drop dramatically – it’s down 25% in 2022. 

But will the stock recover? And should I be buying some shares today? Let’s take a look.

Why has the SMT share price fallen?

So, let’s start by looking at why the SMT share price has dropped. One reason is due to the uncertain global economic outlook, in part because of rising inflation. An example is the UK. The opening up of the economy post-Covid saw fast growth coupled with massive global supply issues. And, as such, the Bank of England expects inflation to reach around 6% by spring 2022. To combat inflation, central banks raise interest rates. And, in times like these, people can receive higher returns on their savings and therefore are less likely to invest. And growth stocks tend to be hit the hardest. Given SMT’s top holdings include NIO, Nvidia, and Illumina, it is clear to see why the fund’s price has dropped.

On top of this, SMT has been impacted by the recent tech sell-off. With its tech-heavy weighting, the global tumble we have seen in the price of these stocks has negatively reflected onto the Scottish Mortgage share price. Further pressures, such as Chinese regulators, have also fuelled the fall.

Long-term growth

However, management makes no secret of the trust’s aim is to look for long-term growth opportunities. Therefore, volatile periods like now should be of no concern to investors.

Instead, as a more valuable measure, it would be smarter to look at returns over a longer time frame. As my colleague Roland Head highlighted, the trust has delivered 650% returns over the past 10 years. This is an achievement that very few investment funds have managed.

Within this period, the trust has also experienced large falls, for example, a 50% drop after the dotcom crash of 2000. What this shows for me is that I should not be deterred from the fall in the share price. And it may actually present an opportunity for me to buy some cheap stock.

Further, investing in it provides me with access to a variety of assets all under one investment. This allows me to diversify my portfolio. What makes this more appealing is the cheap ongoing charges of 0.34%.

Anderson departure

That said, fund manager James Anderson is set to hand over the reins next month. Given the impressive rise of the stock under his control, investors may be disappointed that he’s leaving.

However, co-manager Tom Slater is set to stay, and most of the management team’s members are staying on. As such, I think Scottish Mortgage is still in safe hands.

Will it recover?

Its track record certainly suggests that the trust will recover. And I like the diversification it brings to my portfolio. I think Scottish Mortgage will recover over the long term. However, the current stock market volatility will particularly affect tech stocks. And given its heavy tech weighting, I think we could see the share price drop even further. As such, I won’t be buying any shares just now.

The post The Scottish Mortgage share price is down 25% this year! Will it recover? 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 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

While I think we could see more volatility in the technology sector in 2022, some tech stocks are starting to look quite attractive in my view. With that in mind, here’s a look at two stocks I’ve had a nibble at in the last few weeks.

A defensive Big Tech stock

Given that there’s a bit of uncertainty as to the near-term outlook for the tech sector, my first buy was slightly defensive – Big Tech giant Microsoft (NASDAQ: MSFT). I picked up some stock for $307 per share – about 12% below the company’s 2021 highs (I bought a little too early, in hindsight).

Microsoft is one of my favourite tech stocks. In fact, last year, I wrote that if I could only own one stock for the next decade, it would be MSFT. Why do I like it so much? There are a few reasons.

For starters, it operates in a number of high-growth industries including cloud computing, video gaming, artificial intelligence, remote work, and more.

Secondly, it has a top CEO in Satya Nadella. Since Nadella took the helm in 2014, he has transformed the company into an absolute powerhouse of a business.

Third, the stock offers a nice mix of offence and defence. Because so many businesses rely on its products, revenues are unlikely to plummet any time soon.

Even after the recent share price pullback here, MSFT shares still have a relatively high valuation. For the year ending 30 June 2022, Wall Street analysts expect the group to post earnings per share of $9.22. That means I paid about 33.3 times this year’s forecast earnings for my shares.

This higher valuation does add some risk. However, I’m comfortable with it. To my mind, MSFT deserves a higher valuation due to its high-quality attributes.

A FTSE 250 tech company that’s growing rapidly

Turning to the UK market, I’ve also had a nibble at Kainos (LSE: KNOS). It’s an under-the-radar FTSE 250 company that specialises in digital transformation solutions. Its client list includes the NHS, the Home Office, and the Bank of Ireland. I paid around 1,600p per share for my shares. Late last year, this stock was trading near 2,100p.

The reason I like Kainos is that I’m very bullish on digital transformation as a theme. All over the world, businesses and government organisations are rushing to digitalise their businesses. In an effort to be more productive, they’re moving to the cloud, they’re automating processes, and they’re analysing their data more. This is providing massive tailwinds for companies like Kainos, which has seen its revenue jump 140% in three years.

Like MSFT, Kainos does have a high valuation. I paid around 39 times next year’s earnings for my shares. This high valuation adds risk – if growth slows I’d expect the stock to be volatile.

I’m willing to accept some volatility here, however. To my mind, the long-term growth prospects are attractive. It’s worth pointing out that only a few months ago, Chairman Tom Burnet bought a load of KNOS stock near the 1,800p level. I’m happy to have bought at a lower level than this top-level insider.

The post 2 shares I’ve bought in the tech stock correction appeared first on The Twelfth Magpie.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Kainos and Microsoft. The Motley Fool UK has recommended Kainos and Microsoft. 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.

Here, I’m going to highlight five UK technology stocks I’d buy for my portfolio for 2022 and beyond. All five of these companies are already profitable and have the potential to get much bigger in the years ahead. 

One of the best UK tech stocks

The first tech stock I want to highlight is Softcat (LSE: SCT). It’s a FTSE 250-listed IT infrastructure and services business that provides bespoke, end-to-end technology solutions for businesses and public sector organisations. Its areas of expertise include cloud computing, cybersecurity, data analytics, and remote connectivity.

I see Softcat as a classic ‘picks-and-shovels’ play on the technology boom. In the same way that those selling picks and shovels during the 19th century gold rush made a fortune, Softcat should profit as businesses get up to speed digitally. It’s worth noting that here in the UK, a large proportion of small businesses are yet to achieve full digital transformation, so there should be plenty of opportunities for Softcat in 2022 and beyond.

Its financials are impressive. Over the last five years, revenue has climbed from £672m to £1,157m. Over that period, return on capital employed (ROCE) – a key measure of profitability – has averaged 65%, which is outstanding. These numbers indicate to me that Softcat is a high-quality business.

I’ll point out that the valuation here is quite high. Currently, the forward-looking price-to-earnings (P/E) ratio is about 36. This means there’s some valuation risk. If growth slows, the stock could underperform. Overall however, I think the risk/reward proposition here is attractive.

A top FTSE 250 tech stock

Next up is Kainos (LSE: KNOS). It’s an under-the-radar FTSE 250 company that specialises in digital transformation services. Its customers include the Home Office, the NHS, and Travelex.

Kainos has generated strong growth in recent years (five-year revenue growth of 205%) and recent H1 FY22 results showed further progress. For the six months ended 30 September, revenue was up 33% to £142.3m. Meanwhile, software-as-a-service (SaaS) bookings were up 118%. Looking ahead, analysts expect Kainos to generate revenue of £297m for the year ending 31 March 2022. That would represent growth of a very healthy 26%.

It’s worth pointing out that in November, its Chairman Tom Burnet spent £250,000 of his own money on Kainos shares. I see this insider buying as very encouraging. It indicates that the Chairman is confident about the future and that he expects the stock to rise. It’s worth noting that Burnet paid around £18 per share for his stock, which is pretty close to the share price now.

This is another technology stock with a lofty valuation. Currently, the forward-looking P/E ratio is about 48. I’m comfortable with the valuation however, given the level of growth here. It’s worth noting that analysts at Berenberg just raised their target price to 2,100p from 1,680p.

A work-from-home stock

A third UK tech stock I’d buy for 2022 is Gamma Communications (LSE: GAMA). It’s a leading provider of ‘unified communications’ (UC) solutions. UC integrates all of an organisation’s communication channels, including voice, video, instant messaging, and content sharing, to improve the user experience and help boost productivity. It’s a big growth market in today’s digital age in which employees want to work remotely. According to Grand View Research, the UC industry is set to grow by more than 20% per year between now and 2028.

Like Softcat and Kainos, Gamma has generated strong growth recently. Between FY15 and FY20, revenue jumped from £192m to £394. Over this period, ROCE averaged 27%, which is excellent. Looking ahead, analysts expect the group to post revenue of £452m for 2021 and £494m for 2022.

Gamma shares had a great run in the first half of 2021, but have pulled back in recent months. I think this pullback has created a buying opportunity. At present, the forward-looking P/E ratio here is around 24, which in my view is very reasonable for a company with Gamma’s track record and growth potential.

A play on e-commerce

Another tech stock that has experienced a pullback over the last few months and now offers more value is dotDigital (LSE: DOTD). It’s a software company that provides digital marketing solutions. Its main product is a cross-channel marketing platform designed to help organisations connect with their customers, analyse their marketing data, and grow their brands more effectively.

DotDigital has grown its revenues from £26.9m to £58.1m over the last five years which represents a healthy annualised growth rate of 16.7%. Looking ahead, I expect the group to keep growing on the back of the growth of the e-commerce industry, which is projected to get much bigger over the next five to 10 years. For the year ending 30 June 2022, analysts are forecasting revenue of £65.5m, which represents growth of around 13%.

Currently, the forward-looking P/E ratio here is about 44. That doesn’t leave a huge margin of safety. I can accept this valuation, however, as recurring revenues as a percentage of total revenues is high at over 90%.

A technology stock for the 5G revolution

Finally, I’d also buy Calnex Solutions (LSE: CLX) for 2022. It’s a Scottish technology business that specialises in testing and measurement services for telecommunication networks.

The reason I like Calnex is that the company is seeing high demand for its services right now on the back of the rollout of 5G infrastructure. Mobile networks need to be rapidly expanded to facilitate this new technology and this means a lot of network testing. It’s worth noting that the market for 5G testing equipment is projected to grow at around 9% per year between now and 2027. So, Calnex should have strong tailwinds behind it for many years to come.

The forward-looking P/E ratio here is about 23, which seems very reasonable, to my mind.

Tech stocks: the risks

I’ll point out that while I’m bullish on all five of these UK tech stocks, there’s no guarantee they will perform well in 2022. If we see interest rates rise next year, the technology sector could potentially underperform. Meanwhile, all of these companies face their own unique risks. If their growth slows, their share prices could fall.

I’m optimistic that 2022 will be another good year for the best UK technology stocks though. After all, we are in the midst of a technology revolution.

The post 5 top UK tech stocks to buy for 2022 appeared first on The Twelfth Magpie.

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Edward Sheldon owns Calnex Solutions Plc, Gamma Communications, Kainos, Softcat, and dotDigital Group. The Motley Fool UK has recommended Gamma Communications, Kainos, Softcat, and dotDigital Group. 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.

So why has the DOTD share price fallen so far? And has this pullback provided a buying opportunity for me?

Why dotDigital’s share price crashed

The reason dotDigital’s share price has fallen this week is that the market was unimpressed with the company’s full-year FY2021 results, posted on Tuesday.

The results weren’t terrible, in my opinion. Revenue for the 12 months ended 30 June was up 23% to £58.1m (APAC revenue was up 47%) showing the company is still growing at a healthy rate. Meanwhile, recurring revenue as a percentage of total revenue increased to 93%, from 91% a year earlier.

However, there were certain things in the results the market didn’t like. One was the fact that adjusted earnings per share for the year were only up 4%, to 4.06p. That’s a low level of earnings growth relative to dotDigital’s recent valuation.

Another was that gross margin for the period declined to 82% from 92% a year earlier, impacted by the growth of premium messaging channels, such as SMS.

Overall, the results were just a little underwhelming and, as a result, investors took some profits off the table. It’s worth noting that before this week’s share price fall, the stock had risen about 80% over the previous 12 months. So a bit of profit taking here isn’t really that surprising. Ultimately, the stock had run a bit too far.

Should I buy DOTD shares now?

dotDigital is one of my favourite UK tech stocks. However, the last time I covered it in July, I was concerned that the stock’s valuation was too high. At the time, the forward-looking P/E ratio was near 60, which I couldn’t justify.

“The stock is priced for perfection and there’s very little ‘margin of safety’. If future results are disappointing, the share price could experience a significant decline,” I wrote at the time.

After the recent share price fall, the valuation here now looks far more attractive. If I assume earnings will grow 10% this financial year, the stock’s forward-looking P/E ratio is around 43 at the current share price. That’s still not cheap. However, I think it’s reasonable for a high-growth software-as-a-service company with 93% recurring revenue and a five-year average return on capital of 23.5%.

Importantly, the growth story here seems to be intact. Revenues are growing and management is confident about the future. “As we enter the new year, trading remains strong. Our healthy balance sheet, strong recurring revenues and cash generation provides the flexibility to invest in our growth strategy, giving the Board confidence in the Group’s long-term prospects,” CEO Milan Patel said in the group’s full-year results.

Of course, there are risks to be aware of. If interest rates rise, tech stocks like dotDigital could underperform. And if near-term growth is sluggish, the share price could take another hit.

Overall, however, I think the risk/reward proposition here is relatively attractive now. At a share price of below 200p, I’m a buyer of DOTD shares.

The post dotDigital’s share price just fell below 200p. Is it time to buy this UK tech stock? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares of dotDigital Group. The Motley Fool UK has recommended dotDigital Group. 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.

In October, I took advantage of some of this share price weakness and bought two US tech stocks for my Stocks and Shares ISA. Here’s a look at the two companies I invested in.

Powering the digital revolution 

The first tech stock I bought for my ISA in October was ASML (NASDAQ: ASML). It’s one of the world’s top manufacturers of semiconductor-making equipment and a leader in the lithography space (lithography is the process of printing patterns of electronic circuits onto silicon). I initiated a position here around the $740 mark.

There are a few reasons I’m bullish on ASML. The first is that governments around the world are looking to boost domestic semiconductor production in order to ease supply chain challenges. In the US, for example, the government is going to support Taiwan Semiconductor Manufacturing Company in building a $12bn manufacturing plant. I think this trend should benefit ASML because these new plants are going to require a ton of manufacturing equipment.

The second reason I’m bullish on ASML is that demand for semiconductors – which power almost all modern electronic devices including smartphones, laptops, and electric vehicles – is likely to rise significantly in the years ahead as the world becomes more digital. Already, demand is sky-high today. However, as new technologies such as 5G, autonomous vehicles, and artificial intelligence are rolled out, demand for chips is likely to increase further.

There are risks here, of course. One is the stock’s valuation. When I bought shares, the stock was trading on a forward-looking P/E ratio of about 47. That doesn’t leave a huge margin of safety.

However, I’m comfortable with the higher valuation. ASML basically enjoys a monopoly position in the lithography equipment market (around 85% of global revenues) so I think it’s worth a premium to the market.

400m users worldwide 

The other US tech stock I bought for my Stocks and Shares ISA last month was PayPal (NASDAQ: PYPL). Its share price pulled back after it came to light that the company was looking at buying Pinterest (it has since declared that it’s not pursuing this deal). I bought some shares at around the $242 level.

The reason I bought PayPal is that I expect it to benefit from the growth of e-commerce over the next decade. When online retailers offer PayPal as a checkout option, consumers are nearly three times as likely to complete their purchases. So retailers really can’t afford to ignore the company.

It’s worth noting that according to Juniper Research, digital wallet spending could exceed $10trn globally by 2025, up from $5.5trn in 2020. I think PayPal, with its user base of over 400m customers, is likely to benefit from this growth.

Like ASML, this stock has a higher valuation. When I picked up the shares, the forward-looking P/E ratio was around 50. This valuation carries risk. If future growth is disappointing, the stock could underperform.

Overall however, I think the long-term risk/reward proposition here is attractive. I’m optimistic that the company can continue to generate solid growth in the years ahead.

The post I just bought these US tech stocks for my ISA appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares of ASML Holding, PayPal Holdings, and Pinterest. The Motley Fool UK owns shares of and has recommended PayPal Holdings, Pinterest, and Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended ASML Holding and has recommended the following options: long January 2022 $75 calls on PayPal Holdings. 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 equity volatility

One thing I like about investment trusts is the breadth of stocks you get access to under one investment. SMT is no different here, offering a broad-reaching tech-dominant portfolio. However, some of SMT’s top Chinese holdings, including Tencent (4.2%), NIO (3.5%), and Alibaba (3.3%), have been recent causes for concern.  

Regulatory crackdowns on several companies and industries have stifled growth. For example, Alibaba was fined a $2.8bn for anti-competitive practices and also saw the IPO of its financial affiliate Ant Financials halted. A similar case occurred with Tencent. It faced a hefty anti-competition fine and had its exclusive music listening rights withdrawn. This could be a problem moving forward for SMT shares as these companies make up such a large proportion of its portfolio.

Rising yields/inflation worries

Another concern for SMT is the impact that rising bond yields have on the wider growth stock market. The tech sell-off at the start of 2021 was fuelled by inflationary worries indicated by sharply rising bond yields. SMT’s portfolio is heavily comprised of early-stage growth stocks. These types of stocks are hit the heaviest by inflation as they often operate in debt and a rise in interest rates could prove catastrophic. Inflation also erodes the value of these companies’ future projected earnings. Moving forward, this is something I will definitely be keeping my eye on for Scottish Mortgage Investment Trust shares.

Scottish Mortgage Investment Trust shares: long-term outlook

The reason SMT is heavily invested in early-stage companies is its long-term outlook. As my fellow Fool, Charlie Keough, points out SMT’s aim is to “maximise its total return to shareholders over the long term”. Statements like this indicate the firm is likely looking past shorter-term problems such as Chinese crackdowns. In addition to this, China is the world’s fastest-growing economy. Having such a large stake in this growth should pay off for Scottish Mortgage Investment Trust shares in the future.

In addition to this, Scottish Mortgage Investment Trust shares are up 6%, 14%, and 40% over the past month, six months, and one year, respectively. This shows that no matter the problems SMT has been faced with, it has been able to manage them effectively.

I have been an investor in Scottish Mortgage Investment Trust for some time. However, I would wait before adding any more to my portfolio. I would like to see how Chinese equities perform in the coming months and how SMT manages its portfolio in reaction

The post Should I buy Scottish Mortgage Investment Trust shares today? appeared first on The Twelfth Magpie.

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Dylan Hood 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.