Top investor John Rogers says to look outside of the S&P 500 to find new opportunities

Published Wed, Mar 3 20216:25 PM ESTUpdated Wed, Mar 3 20217:17 PM EST

Jesse Pound @/in/jesse-pound @jesserpound

Investors searching for gains will need to be more selective and avoid some of the biggest stocks in the S & P 500, Ariel Investments CEO John Rogers said Wednesday during a special edition CNBC PRO subscriber talk. The major market indexes have traded sideways in recent weeks after a dramatic gain from their pandemic lows a year ago Rogers appeared earlier in the day on " Closing Bell ," where he said he thought value stocks were in for a long bull run. He then joined CNBC's Scott Wapner for a conversation about his investing process and some deeper conversations about his favorite stocks. Watch the full interview above. "I'd stay away from the S & P 500 because it's so chock-a-block with the FAANG stocks and these huge tech companies and fast-growing tech companies," Rogers told Wapner. "So that's the area which will cause the entire market to go down because they're such a large percentage of the S & P 500. But that doesn't mean there aren't pockets of opportunities." Rogers' flagship Ariel Fund rose 10% in 2020, beating the Morningstar category average for mid-cap value by more than 7 percentage points, and has posted four double-digit gains in the past five calendar years. The fund is up 18% so far this year, beating the category average again and the broader market. After years of value stocks underperforming growth names, Rogers said now is the moment for his favorite sectors to shine, saying that it could resemble the shift from growth to value as the tech bubble popped two decades ago. "We were early in predicting the value transition, but we do think it's here now and it's going to surprise people on the upside," he said. Financial stocks Among Ariel's top investments are asset management and bank stocks. "We are finding selective opportunities to buy here, particularly in the financial services sector," Rogers said, adding that the possibility of a continued rise in interest rates and pickup in inflation should favorable for those names. The investor singled out Affiliated Managers Group and Bank of Oklahoma as financial stocks he is bullish on, and said Ariel is still betting on Lazard despite a recent slump for that stock. "This company is just not well understood. It's not in all the indexes. It's in very few indexes. It's under-owned, underappreciated," Rogers said. Ariel is also bullish on the real estate sector, and Rogers said that positions in flooring company Mohawk and plumbing company Masco were interesting ways to indirectly bet on the sector. Media plays Another area with "real bargains" is the media sector, Rogers said, pointing to television stocks like Meredith and Tegna. He also discussed MSG Entertainment and MSG Networks, which is the regional sports network that broadcasts games of the New York Knicks. Rogers is also bullish on toy company Mattel's push to turn itself, at least in part, into a media stock. "They're going to be able to use their intellectual property to have movies that will be tied to toys, and we think that's going to be a big help to their profitability going forward," he said. As part of the discussion with CNBC, Rogers also talked about how he builds his positions in stocks, the spike in retail investing over the past year and the importance of Black representation in financial industries.

The major market indexes have traded sideways in recent weeks after a dramatic gain from their pandemic lows a year ago

Rogers appeared earlier in the day on "Closing Bell," where he said he thought value stocks were in for a long bull run.

He then joined CNBC's Scott Wapner for a conversation about his investing process and some deeper conversations about his favorite stocks.