The stock market has generally been kind to investors over the past year. Both the FTSE 100 and S&P 500 have returned around 15%, before dividends.
Yet the inflationary effect of the Iran conflict is causing problems for many businesses (both internally and externally through weakening consumer demand). Tankers are still being hit by projectiles in the Strait of Hormuz.
Meanwhile, the S&P 500’s price-to-earnings ratio is historically quite high. And the top five companies (Nvidia, Apple, Microsoft, Amazon, and Alphabet) now account for about 30% of the entire index!
However, if these shares nosedive, they could quickly trigger a correction (a fall of 10% or more), which could lead to a proper meltdown.
Finally, we have the AI revolution. If hyperscalers suddenly pull back on AI infrastructure spending, many other stocks risk crashing (chip makers, energy utilities, etc).
Now to be clear, I’m not making any predictions about a crash here. I’m just pointing out some potential risks. But let’s say there was a crash. Which stock do I think would be worth considering buying? Scottish Mortgage Investment Trust (LSE:SMT) would have to rank highly for me, for a few reasons.
First, the 117-year-old trust has stood the test of time. It has survived two world wars, the Cold War, and numerous recessions and stock market crashes.
During the Global Financial Crisis, the share price experienced a peak-to-trough share price collapse of around 63%. The same thing happened between late 2021 and mid-2023.
Guess what? Every time Scottish Mortgage has recovered from these setbacks and eventually gone on to hit new highs. And I don’t think anything would be different next time.
That’s because of the extreme quality of the growth companies in the portfolio. We’re talking about the likes of Nvidia, Amazon, TSMC, ASML, and CATL (the global leader in EV batteries).
While the trust is often seen as a pure tech play, it’s actually more diverse than that. Holdings such as Moderna, Ferrari, Hermès, Wise, MercadoLibre, and EV leader BYD have little or nothing to do with massive AI infrastructure spending.
What makes me bullish though is the FTSE 100 trust’s ability to identify future winners outside of public markets. The standout winner has been SpaceX, with Scottish Mortgage sitting on a 25-fold return from its investment.
Another hidden gem it identified was drone delivery firm Zipline. According to Bloomberg, the firm’s aiming to raise $1bn at a $20bn valuation. This has just boosted Scottish Mortgage’s net asset value, putting Zipline into its top-10 holdings.
Other private firms I’m excited about include Revolut, the digital banking giant, and internet payments processor Stripe. I expect this pair to go public one day, likely at much higher valuations than Scottish Mortgage first invested.
That said, there’s no guarantee the trust’s outperformance will go on forever. It has a sizeable stake in Anthropic, which could go either way when the AI lab goes public at an enormous valuation later this year.
Also, the valuations of growth stocks could be hurt by rising interest rates. Nevertheless, I think the FTSE 100 stock is worth considering today.
It’s not one I would go all-in on as it’s near a record high right now. But during a crash, it’s a stock I would buy in a flash.
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Ben McPoland owns shares of Ferrari, MercadoLibre, Nvidia, Scottish Mortgage, SpaceX, TSMC, and Wise.
This story originally appeared on Motley Fool
