Diversify away from the growth concentration in the S&P 500, says Bill Nygren

There are too many investors in the so-called Magnificent Seven and it’s time to move away from them, according to value investor Bill Nygren. While there has been some rotation out of high-flying tech names into smaller stocks, the small-cap Russell 2000 still lags the S & P 500 for the year. The former is up 11% in 2024, while the other has soared 22% — led by sharp gains in Nvidia , Meta Platforms and Amazon , among others. “We think it’s a really good time for an investor to diversify away from the concentration in the S & P 500,” Nygren, Oakmark funds CIO and portfolio manager, said Monday on CNBC’s ” Money Movers .” “The new names we’re purchasing have kind of been left behind in this market that is so concentrated on mega-cap growth.” He said these stocks are “generally selling at half to two-thirds the market multiple, which means we don’t think nearly as much has to go right for them for those stocks to perform well.” Nygren highlighted automotive parts supplier Genuine Parts as a name he likes. He thinks the company is “quite misunderstood by investors,” with most believing it’s structurally disadvantaged and missing the fact that Genuine Parts is actually growing at a double-digit rate. Genuine Parts is currently at around 16 times trailing earnings, well below the S & P 500’s multiple of 27.7, per FactSet. Nygren believes the stock’s closest peer is Applied Industrial Technologies , which is currently trading over 23 times its earnings. Nygren is also a fan of Genuine Parts’ new CEO William Stengel, who could use his background in private equity to improve the company’s profitability. Stengel took over as chief executive in June. Nygren is also bullish on Merck , noting CEO Rob Davis is more focused on costs and return on investments than other executives in the pharmaceuticals business. Shares of Merck are currently trading at around 13 times forward earnings, making their valuation attractive. Investors have been anxious due to Merck’s patent expirations on large drugs coming up at the end of the decade. However, Nygren said there were ways for the company to extend the life of these assets “through combinations with other compounds that would help expand [their] usage.”