MW This fund manager isn't big on 'Mag 7' tech stocks. But he likes these 'Mag 2.'

By Michael Brush

Why T. Rowe Price manager David Giroux is bullish on Microsoft and Amazon

No one can call a stock-market bottom. But given the level of panic among stock investors recently, and how wildly the U.S. stock market reacted to the Trump administration's temporary tariff pause on Wednesday, this seems like a good time to shop around the market.

For help on stocks and sectors to consider, I recently turned to one of the best in the business: David Giroux, the veteran manager of the T. Rowe Price Capital Appreciation Fund PRWCX.

Giroux's go-anywhere fund beats its Morningstar category by four percentage points annualized over the past five and 10 years, according to Morningstar Direct. That kind of outperformance is uncommon - particularly among stock-fund managers.

Giroux is able to take a "nimble contrarian approach" that helps the fund "capture pockets of value" when he identifies stock mispricing, writes Morningstar fund analyst Jason Kephart.

T. Rowe Price recently launched an exchange-traded fund based on Giroux's stock selection called T. Rowe Price Capital Appreciation Equity ETF TCAF. Unlike with mutual funds, ETFs update their portfolio holdings daily.

Here are the key takeaways from Giroux on how to think about the current market environment, and some of his recommended stocks and market sectors to consider.

1. Tune out the market volatility so it doesn't frighten you: "Everybody is so influenced by what is happening on the screen," Giroux says. Instead, he looks past the moment. Says Giroux: "We don't care what the macro consensus is, or what talking heads are saying. We divorce ourselves from what the market says we should do."

Giroux puts his time into sector and stock selection, favoring stocks with the best risk-adjusted return over the next five years.

2. Ditch the 'Magnificent Seven' for the 'Magnificent Two': Giroux wasn't buying the so-called Magnificent Seven basket of tech stocks after their sharp pullback. But he is heavily invested in two of them. He favors Microsoft $(MSFT)$ because of its potential growth in cloud computing, inferencing in artificial intelligence as opposed to training, and security software. Giroux expects Microsoft to post 13% average annual earnings growth over the next several years, and the stock will benefit from multiple expansion, too.

He is also bullish on Amazon.com $(AMZN)$ for its potential in cloud computing, AI and retail sales.

Giroux's portfolio has been underweight Apple $(AAPL)$ in part because of concerns that the revenue it gets from Alphabet $(GOOGL)$ to make Google the default browser on Apple devices might get cut in half. "That's not in anyone's numbers," he says. Another problem with Apple: "So far, their AI is a flop." He also thinks Apple's market value is too high.

Giroux also has a portfolio underweight to Nvidia $(NVDA)$ on concerns about growth in the company's Blackwell 200 chipset sales. Instead, he favors Advance Micro Devices $(AMD)$ because the thinks it will take market share from Nvidia. "Advanced Micro Devices [stock] is a double or triple from here in five years," Giroux says.

3. Favor software companies that are second tier, but not second rate: "Software is incredibly compelling right now," says Giroux. "This is an area where if you have any kind of time horizon you are going to make a lot of money." Stocks in this group are posting sales and free-cash-flow growth of 10%-12%. That's better than the market overall, yet many of these stocks trade at below market multiples. Those multiples will increase, leading to above-market returns over the next five years.

He likes second-tier names you might not have heard of. One is PTC $(PTC)$, which sells computer-assisted design software, and software that helps companies manage product development, manufacturing and product tech support. The company has been posting double-digit earnings growth for several years, in part because it is taking share and boosting profit margins - trends that should continue. Likewise, human-resources software company Workday (WDAY) is gaining market share and taking steps to boost profit margins. Both companies have 90%-plus recurring revenue.

Giroux also singles out Autodesk $(ADSK)$, where activist shareholder Starboard Value is trying to promote changes that it says would improve the company's performance.

4. Favor healthcare stocks: Here, Giroux likes suppliers that sell the essential laboratory equipment, diagnostic products, reagents and software used in health care. "There are really good companies trading at below-market multiples growing earnings at a much faster rate," he says.

Giroux singles out Becton Dickinson $(BDX)$, which is in the process of selling off two divisions. The rest of the company trades for nine times earnings, but Giroux thinks it should go for twice that. "If they do the right thing and spin off these businesses and buy back stock, it is a $500 stock without much downside risk." The shares recently changed hands for about $205. Starboard is an activist here, too.

The fund manager also singles out Revity $(RVTY)$, which offers diagnostics, and equipment and supplies like instruments and reagents. The stock is down on worries about National Institutes of Health budget cuts, but in reality, only a small amount of revenue is tied to NIH spending.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned MSFT, AMZN, AAPL, GOOGL, NVDA and AMD. Brush has suggested MSFT, AMZN, AAPL, GOOGL, NVDA and AMD in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks

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-Michael Brush

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April 09, 2025 18:29 ET (22:29 GMT)

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