Don’t Let the Spotlight Blind You to This Opportunity VIEW IN BROWSER  | BY KEITH KAPLAN
CEO, TRADESMITH |
On Monday, March 27, 2000, Cisco Systems became the most valuable company on Earth. It was the moment everything seemed to come together – and the moment when the cracks began to show. And it revealed how fragile a market becomes when too much wealth rides on one theme… something that’s happening again today. If you’re under 40, you may not have heard of Cisco. But it was the most heralded stock of the dot-com boom. It made the switches and routers that moved data across the internet. Or, as breathless pundits liked to say at the time, the company was laying the “backbone” of our digital future. And its San Jose, California, headquarters buzzed with the kind of scenes you’d expect from the dot-com years: engineers refreshing stock price tickers between coding sprints, TVs on brackets tuned to CNBC, and employees tracking their stock-option wealth down to the minute. John Chambers, Cisco’s CEO, was the face of the moment. When he held company-wide meetings, employees packed auditoriums. Analysts quoted him as if he were a chief economist for a major investment bank. Business reporters followed him through the halls with cameras. In a market driven by belief in the internet’s future, Chambers had become its leading prophet. What he didn’t know was that, three days earlier, the S&P 500 had marked the top of the biggest stock-market boom in a generation. Over the next two years, Cisco’s stock lost more than 80% of its value. And the tech-heavy Nasdaq fell by a similar magnitude. It’s a cautionary tale… one that many investors today are ignoring. Back then, Chambers was the rock-star CEO everyone turned to when they wanted to understand how the internet would change the world. Today, it’s Nvidia boss Jensen Huang in his black leather jacket sketching out the future of artificial intelligence. But the real similarity isn’t in the personalities or the hype. It’s in the structure of the market itself. During the dot-com peak, the top 10 stocks in the S&P 500 represented roughly 25% of the entire index. Today, the top 10 represent closer to 35%. Concentration risk hasn’t eased – it’s increased. Things have gotten so far out of whack that just two AI stocks – Nvidia and Google – have contributed about one-third of the S&P 500’s year-to-date gains. At several points, Nvidia added more to the index than the bottom 400 stocks combined. And that’s a problem. Because when the stock market becomes concentrated in just a few giant stocks, volatility goes up – and so does your risk. So today, I’ll show you the simple step you can take to protect your portfolio. And we’ll look at a sector outside of AI that isn’t in the spotlight… but is one of the best places for your money today. Concentration Risk Sneaks Up on You Put simply, concentration risk is what happens when too much of your money hangs on one bet. And most people don’t see it coming. Honestly, I don’t blame them. The S&P 500 sounds like the safest, most diversified investment you could make. Five hundred companies. Every sector. Every industry. If that’s not diversification, then what is? But what many investors don’t understand is that the S&P 500 doesn’t treat every stock equally. It’s weighted by market value. The bigger a company gets, the bigger a presence it becomes in the index… and in your portfolio. Here’s how it works: A company starts winning. Its stock price rises. That boosts its weight in the index. That bigger position attracts more passive inflows, and those inflows push up the stock price even further. Before long, a single giant stock – or two or three – can dominate what you thought was a diversified portfolio. Cisco was that stock in the late 1990s. Nvidia is that stock today. The companies themselves aren’t the problem – the concentration is. When a few stocks account for most of the market’s gains, the entire index becomes dependent on them. If one weakens, the impact spreads fast. And when the market gets this narrow, something else happens: The best opportunities shift outside the spotlight. Why It Pays to Look Beyond the Giants How many people do you know who own Nvidia, Palantir, Tesla, Microsoft, or Google? Right now, everyone is piling into the same handful of mega-cap AI names. And as all the attention gets sucked into one corner of the market, the rest of the investment world gets ignored. If you look beyond the giants, you’ll not only diversify away from these highly concentrated stocks, but you’ll also find sectors trading at far lower valuations, with far steadier earnings, and far less hype. They’re not the kind of companies that make headlines. But they’ll help keep your portfolio balanced when the high flyers finally come down to Earth. And as I posted on X last week, one of the biggest opportunities on my radar right now is healthcare and biotech stocks. The math is inescapable: 10,000 boomers turn 75 every day. Those folks are entering the phase when health care spending explodes. They aren’t cutting back on procedures, drugs, or senior-living facilities – they’re ramping up. It’s no wonder we’re seeing a laundry list of new 52-week and all-time highs for health care stocks. - Eli Lilly (LLY) – hitting new 52-week and all-time highs
- AstraZeneca (AZN) – pushing into new 52-week highs
- Johnson & Johnson (JNJ) – breaking out to fresh highs
- HCA Healthcare (HCA) – setting new records
- Welltower (WELL) – reaching new all-time highs
- Medtronic (MDT) – climbing to new 52-week highs
- IQVIA (IQV) – posting new highs
- Cardinal Health (CAH) – hitting new all-time highs
- Cencora (COR) – breaking into new 52-week highs
Plus, dozens of smaller biotech stocks are hitting their strongest levels in years. It may not be making the same kind of headlines AI is making right now. But increased healthcare spending is a demographic wave with real force behind it – the kind that keeps moving no matter what markets do. So if you’re underweight in the health care and biotech sectors or are sitting on the sidelines entirely, now is a great time to shift some money into these under-owned sectors. They may not come with the same kind of hype as AI. But the health care boom is one of the greatest bull markets most investors will ever see – and it’s showing zero signs of fatigue. Most investors are underweight in healthcare and biotech right now – largely because the AI boom has overshadowed everything else. The attention is on servers, chips, and cloud infrastructure. But the long-term demand story is unfolding in hospitals, clinics, and labs. The irony is that many healthcare stocks today trade at far lower valuations than the broader market, even though their revenues and earnings are more predictable. And the lower the price you pay for a stock relative to its earnings, the higher your expected returns will be. Eli Lilly is expensive because of its obesity drugs. But you’ll find dozens of established healthcare companies trading at the kinds of valuations we used to associate with solid blue-chip stocks – 13x… 14x… even 15x earnings. The average mega-cap tech stock still trades at more than double that. And in a few cases, the “boring” healthcare names are putting up stronger year-over-year earnings growth than the mega-caps everyone’s buying. But because they don’t build GPUs or run cloud servers, they barely get noticed. This is what happens in top-heavy markets. The spotlight blinds you to what’s happening in the rest of the room. But if you know where to look, the rest of the room is where the opportunity is. All the best, 
Keith Kaplan
CEO, TradeSmith P.S. I share insights into the market here in the Daily every Friday. But I post on X nearly every day. Follow me to find out more about my latest ideas about the market and the opportunities and risks I see. And if there are topics you’d like me to cover more in these pages or on X, I’d love to hear from you. As always, you can reach me at feedback@TradeSmithDaily.com. | 
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