Big tech stocks have been a hot topic over the past year, with investors piling into artificial intelligence paragon Nvidia and other so-called “Big Seven” stocks: Alphabet, Amazon, Apple, Meta, Microsoft and Tesla. But this intense focus on a handful of stocks has led one portfolio manager to urge investors to diversify and list two stocks that he thinks look particularly attractive. “We think this concentration is troublesome and a cause for concern,” said Aaron Dunn, portfolio manager of Morgan Stanley’s U.S. Value Fund. “We do tell (clients) that we do think the market has broader diversification. It’s important. “You need to allocate to other parts of the market because you’ll be glad you did at some point, and that day will come. Dunn, who also serves as co-head of value stocks at Morgan Stanley, said other stocks offer investors “a lot of opportunity” and named two stocks he likes. BJ’s Wholesale Club Membership chain BJ’s Wholesale Club is on Dunn’s list One of the company’s namesakes allows paying members to save money when buying in bulk. One of the stock’s strengths is its balance sheet, which Dunn calls “in good shape.” The business has generated strong returns on capital and has “pretty good” free cash flow, he added. “They also have a large digital footprint…contrary to their larger peers in the U.S., they have the ability to expand their footprint on a store basis,” he said. “All of these things are good for us. It’s helping consumers. We don’t think stocks like this are going to see a big decline because consumers are saving money.” BJ’s has 244 clubs in the U.S. and offers membership fees for the service It’s $55 per year, with higher-level memberships costing $110. Its competitors include Costco wholesalers and Walmart-owned Sam’s Club. The membership services company’s shares are up about 32.7% year to date and nearly 41% over the past 12 months. Of the 24 analysts covering the stock, 12 have buy or overweight ratings, 11 have hold ratings and one has a sell rating, according to FactSet data. Their average price target is $86.46, which implies a potential downside of approximately 2.2%. Thermo Fisher Scientific Healthcare services and biotechnology company Thermo Fisher is another favorite of Dunn’s, which he views as an industry leader and “supermarket of tools and analytics.” As of April 30, the company accounted for 3.35% of his American Value Fund. “They are very diversified (and have) a strong acquisition growth strategy. This is a company where you can invest a lot of money in biotech companies, pharmaceutical companies, etc. The value investor acknowledged the slowdown in health care spending post-COVID-19. But said things are looking up now. “You’re going to have good headwinds in spending in this industry. In fact, given this pending situation, these stocks are not going anywhere in a few years,” Dunn said. “We think (Thermo Fisher) is really positioned to benefit from that over time.” He added that it’s a “high return business, high recurring revenue business, good balance sheet, good free cash A streaming, extremely well-run business that we believe is undervalued in today’s market.” Thermo Fisher’s shares are up about 9.5% year to date and 12.8% over the past 12 months. FactSet data shows that of the 28 analysts covering the stock, 20 have given it a buy or overweight rating, with an average price of $627.64. This gives it 8% upside potential.
