Big Tech has been a closely watched theme over the past year, with investors piling into AI poster child Nvidia and the other so-called “Magnificent Seven” stocks: Alphabet , Amazon , Apple , Meta , Microsoft and Tesla . But this heavy focus on just a few stocks has led one portfolio manager to urge investors to diversify, naming two stocks he thinks look particularly attractive. “I would say the concentration is troublesome, in our opinion, and it’s something to watch. We do tell [clients] we really think a broader diversification of the market is important,” Aaron Dunn, portfolio manager at Morgan Stanley’s U.S. Value Fund, told CNBC’s “Street Signs Asia” on Friday. “You need to have allocations to … other parts of the market, because you will be glad you did at some point, and that day will come.” Dunn, who also holds the title of co-head of value equity at Morgan Stanley, said other stocks offered investors “a lot of opportunity,” naming two he likes. BJ’s Wholesale Club Membership chain BJ’s Wholesale Club is among the names on Dunn’s list. The company enables paid members to save money when they buy in bulk. Among the merits of the stock is its balance sheet, which Dunn said is “in great shape.” He added that the business earns strong returns on capital and has “pretty good” free cash flows. “They’ve got a great digital footprint as well … Contrary to its big peer in the U.S., they have the ability to grow their footprint on a store basis,” he said. “All those things line up for us. It helps the consumer. We don’t think you’re going to get a big flex down in a stock like this, where consumers are saving money.” BJ’s has 244 clubs in the U.S. and offers its services at a membership fee of $55 per year, or $110 for a higher tier. Its rivals include Costco Wholesale and the Walmart -owned Sam’s Club. Shares in the membership services company are up around 32.7% year-to-date and nearly 41% in the last 12 months. According to FactSet data, of 24 analysts covering the stock, 12 give it a buy or overweight rating, 11 have a hold rating and one has a sell rating. Their average price target is $86.46, which implies a potential downside of around 2.2%. Thermo Fisher Scientific Healthcare services and biotechnology company Thermo Fisher is another favorite for Dunn, who sees it as an industry leader and “supermarket of tools and analytics.” It made up 3.35% of his U.S. Value Fund as of Apr. 30. “They’re very diversified [and have] strong M & A growth strategy. It’s a company where you had a big influx of spending across biotech companies, pharmaceutical companies during Covid. So we got above-trend growth and spin,” Dunn said. Acknowledging a slowdown in healthcare spending post-Covid, the value investor said things are now picking up. “You’re going to have this nice back tailwind to yourself of spending in this industry. And really, the stocks haven’t gone anywhere in a couple years now, given this overhang,” Dunn said. “We think [Thermo Fisher is] really ready to sort of benefit from this as the year progresses.” He added that it is a “high return business, high recurring revenue business, great balance sheet, great free cash flow, extremely well-run business, and we think it’s undervalued today in the market.” Shares in Thermo Fisher are up around 9.5% year-to-date and 12.8% in the last 12 months. Of 28 analysts covering the stock, 20 give it a buy or overweight rating at an average price of $627.64, according to FactSet data. This gives it upside potential of 8%.
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