This Fund Manager Isn’t Big on ‘Mag 7’ Tech Stocks. But He Likes These ‘Mag 2.’
By Michael Brush – T. Rowe Price Manager David Giroux Bullish on Microsoft and Amazon
No one can definitively call a stock-market bottom, but with the palpable panic among stock investors lately, coupled with the U.S. market’s erratic reaction to the Trump administration’s recent tariff pause, it’s clear that now is the time to hunt for value. Investors would do well to look to the expertise of seasoned fund managers like David Giroux of T. Rowe Price, who has cultivated a remarkable track record by steering clear of popular fads while focusing on long-term growth and value.
Giroux manages the T. Rowe Price Capital Appreciation Fund (PRWCX), posing a striking outperformance as his fund outshines its Morningstar category by a whopping four percentage points annually over both five and ten-year periods. Such excellence isn’t a mere stroke of luck; it reflects a “nimble contrarian approach” that allows Giroux to capitalize on stock mispricing when others are simply panicking.
Recently, T. Rowe Price launched an exchange-traded fund based on Giroux’s stock selection, the T. Rowe Price Capital Appreciation Equity ETF (TCAF), designed to provide daily updates on its portfolio holdings. Below are key insights from Giroux regarding the volatile market dynamics, along with his recommended stock picks and sectors to consider.
1. Tune Out the Market Volatility
Giroux emphasizes the need to filter out the distracting noise generated by market fluctuations. “Everybody is so influenced by what is happening on the screen,” he states. Instead of being swayed by prevailing sentiment or the opinions of market commentators, Giroux focuses on strategic sector and stock selection to identify promising investment opportunities.
2. Ditch the ‘Magnificent Seven’ for the ‘Magnificent Two’
Interestingly, while many are enamored with the so-called “Magnificent Seven” tech stocks, Giroux is skeptical. He is not inclined to invest heavily in the larger tech titans after their sharp correction but finds merit in two standout companies: Microsoft (MSFT) and Amazon (AMZN).
Giroux sees immense growth potential in Microsoft, particularly in areas like cloud computing and AI security software, projecting an average annual earnings growth of 13% over the coming years. He is similarly optimistic about Amazon as it continues to expand its cloud services and enhance retail sales capabilities.
Conversely, Giroux remains underweight in Apple (AAPL), citing concerns over a potential reduction in revenue from Alphabet (GOOGL) and viewing Apple’s AI developments as lackluster at best. He also finds Nvidia (NVDA) problematic, opting instead for Advanced Micro Devices (AMD), which he believes could capture market share from Nvidia, declaring that AMD stock could double or triple in value within five years.
3. Favor Second-Tier Software Companies
According to Giroux, software companies represent a particularly compelling investment opportunity. These companies often show impressive sales and free cash flow growth rates of 10-12%, yet they frequently trade at multiples below the broader market, making them attractive buys. He champions lesser-known second-tier companies such as PTC, which specializes in computer-aided design software, and Workday (WDAY), a human-resources software provider, both boasting impressive recurring revenue.
Moreover, Giroux also highlights Autodesk (ADSK), which is in the midst of a transformation propelled by activist shareholders advocating for enhanced performance metrics.
4. Emphasize Healthcare Stocks
On the health services front, Giroux has a keen interest in vendors providing essential laboratory equipment and diagnostic products. He highlights Becton Dickinson (BDX) as an undervalued opportunity, trading at nine times earnings yet projected to be worth twice that post-divestiture of certain divisions. He dubs it a potential $500 stock with minimal downside risk, maintaining that the company is well-positioned for future earnings growth.
In addition, Giroux points to Revity (RVTY), which offers diagnostic tools and relevant supplies, suggesting that present concerns about budget cuts from the National Institutes of Health are overblown given the minor revenue exposure to NIH funding.
In conclusion, navigating today’s market requires a discerning gaze and a willingness to stray from the herd. Investors looking for a solid anchor in these turbulent waters would do well to heed the insights of savvy fund managers like David Giroux, whose recommendations offer a roadmap to valuable stocks underpinned by sound financial principles.
