John Rogers, founder, co-CEO and chief investment officer of Ariel Investments, believes investors are overlooking quality consumer and entertainment companies poised to outperform when the artificial intelligence trade cools. He draws a direct parallel to the internet bubble's burst in 2000, when overlooked equities surged from depressed valuations.
Since late 2022, tech stocks have driven the market higher on AI enthusiasm. The S&P 500 closed above 7,800 on Tuesday for the first time, largely propelled by chipmaking stocks. This concentration has left many non-tech companies trading at distressed valuations.
"You never know when the exact inflection point is going to happen, but it does remind me of how the internet bubble burst in 2000 and the boring, smaller companies exploded from the bottom and outperformed for several years," Rogers said on CNBC's Squawk Box on Wednesday. "I feel that's the same situation today."
Rogers identified world-class consumer brands trading at less than 10x next year's earnings—a valuation he described as rare over the past two to three decades. These companies are ignored simply because they lack the market's current "sexy" appeal.
His top pick is OneSpaWorld, a health and wellness provider offering spa services on cruise ships. The stock is up approximately 11 percent year to date. FactSet data shows an average analyst buy rating with 36 percent upside to consensus price target.
Rogers also favors entertainment companies positioned to benefit from sustained consumer demand for live experiences. Madison Square Garden Entertainment, which operates Madison Square Garden arena and Radio City Music Hall, has gained roughly 49 percent year to date. It carries an average overweight rating with 16 percent upside to consensus target, according to FactSet.
Sphere Entertainment, which owns and operates a Las Vegas entertainment arena and MSG Networks, has moved more than 8 percent higher year to date. Analysts rate it with an average buy rating implying 64 percent appreciation to consensus target. "People want entertainment," Rogers said. "AI is not going to disrupt that business."
J.M. Smucker, which owns Folgers coffee, Jif peanut butter and Smucker's jams and jellies, rounds out his consumer-focused thesis. Rogers believes sustained demand for these established brands will persist regardless of AI adoption. His positioning reflects conviction that a market rotation favoring durable consumer staples and experience-driven businesses over current AI-driven tech leaders is imminent.
