Scottish Mortgage Investment Trust (LSE: SMT) is a FTSE 100 stock that’s down 45% since late 2021. However, there are three reasons why I think it now looks like a bargain. Here they are.

Wonderful companies at fair prices

Over the past 18 months, the trust has added a handful of new stocks to its portfolio. These include dominant market leaders in growing industries.

Here are some of them:

• Meta Platforms, the owner of Facebook, Instagram, and WhatsApp, has over 3bn users worldwide
• Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest independent chip foundry
• Sea Limited owns Shopee, the biggest non-Chinese online marketplace in Asia
• Hermès International is the crème de la crème of high-end luxury brands

Hermès is a brand new addition, but the rest have done well since they were purchased at attractive valuations. For example, the trust re-bought Meta stock in 2023 after selling out in 2020. Having almost doubled over the past year, it’s now near a record high at $567.

TSMC and Sea Limited have likewise surged since the trust invested in them earlier in 2024.

After a sticky couple of years of underperformance, it looks like Scottish Mortgage has rediscovered its magic touch. It’s been able to buy into these wonderful companies at fair prices, and that has to be a good thing long term.

Going for extreme high quality

I think this reflects a (positive) change in stock-picking. For example, if we go back to the 12-month period leading up to March 2021, the trust was investing in a slew of unprofitable companies.

It bought ChargePoint Holdings, KE Holdings, Carvana, and Lilium. Since then, interest rates have risen sharply and many of these story stocks have been crushed. It’s since sold all four.

In contrast, the recent picks are definitely less speculative in nature. The profit margin for Meta is around 29%, while TSMC sports an insane 38% net margin.

In the second quarter, revenue at Hermès’ largest division (leather goods) rose 18%. For the first half, its net profit was €2.4bn on revenue of €7.5bn, translating to a 32% margin.

Again, this focus on high profitability has to be a positive development, in my opinion.

A 10.5% discount

Consequently, I reckon the portfolio is looking in tip-top shape. Here are the 10 largest holdings (as of 31 August):

Tempus AI, which uses artificial intelligence to analyse clinical and molecular data, has performed well since going public in June. Shares are up 34%.

Morgan Stanley analyst Tejas Savant recently said Tempus is a “unique platform company that sits at the intersection of healthcare and data/AI“.

Currently, investors can buy into Scottish Mortgage’s exciting portfolio at a 10.5% discount to net asset value. I think that constitutes a bargain!

Optimism

Now, while I think these latest additions look like smart buys, there’s no guarantee they’ll outperform in future. Growth stocks might fall out of favour, impacting the trust’s performance.

However, I’m very optimistic about the long-term prospects of the portfolio here. If I didn’t already own the stock, I’d be adding it to my ISA right now.