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More new S&P highs ahead in 2019, says $9 billion money manager

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It’s the great rotation.

Investors have been pulling away from growth and defensive stocks — plays that tend to perform better during economic slowdowns — and moving into value names as market conditions improve and optimism starts to creep back into the investing community.

That could make for a rally to even higher highs for the major averages, says Avalon Investment & Advisory’s Bill Stone, who in January and February said the S&P 500 would reach new highs by year-end, a call that very much came to fruition.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all closed at records Friday, with the S&P logging its fifth straight week of gains.

And, if you ask Stone, who is chief investment officer and managing director at Avalon, the rotation out of growth and into value is a major catalyst for these moves — and the ones to come.

«Value stocks had really been left in the dust. That rotation has kicked in. We’ve gotten much more of the cyclical names, the value names, acting better. I think that can help take us to new highs,» he said Friday on CNBC’s «Trading Nation.»

As for the things that kept stocks at bay for much of this year, namely worse-than-expected economic data, recession fears and the U.S.-China trade dispute, Stone maintained a fairly positive outlook.

On the economy, Stone, who «doesn’t see a recession» coming anytime soon, hoped to see more data that support the idea that «the U.S. and globally economy have kind of stabilized and hopefully put in a bottom here,» he said.

«That certainly helps,» the investment chief said. «And … connected to that is clearly the trade dispute. … Sometimes, we get headlines that maybe call some things into question, but, at the end, I think we are kind of moving toward at least a détente. And, frankly, détente’s enough.»

The spike in bond yields this week, while stark, also fed into Stone’s bull case.

«We’re right in that sweet spot» of just under 2% on the 10-year U.S. Treasury yield, Stone said. «Right now, [yields are] going up for a good reason, which is the belief that the global economy and the U.S. economy are getting a bit better. I think that’s really the nice part. I think the danger is if they go up for some other reason.»

The worst-case scenario is unlikely to play out, however, given the U.S. Federal Reserve’s indication following its latest interest rate cut that it will pause its policy moves for the time being, Stone said.

So far, he sees the friendly Fed and the rally to records as drivers keeping the market in a good place, which could extend into next year barring some newfound exuberance among buyers.

«It’s hard to say, with fund flows and everything else still being net-negative overall for the year, that people have been rushing in to buy a lot of stocks, so I don’t get too worried about things being too carried away,» Stone said.

As such, even if Wall Street estimates for 10% year-over-year earnings growth in 2020 don’t pan out, Stone could still see stocks climbing higher on the back of mid-single-digit earnings gains.

«Even if you can book some sort of a mid-single-digit number out of stocks next year, that’s still an attractive number versus what you’d ever earn out of bonds at the moment,» he said.

In that environment, Stone would take part in the flight to value, he said.

«I still like the value side of things,» the investor said. «Obviously, it’ll wobble and get hit whenever you get some sort of worries about the economy popping up, but I think if you believe, like we do, that we’re going to continue to see some better news out of the economy, I do think it’s the place to be because they are still relatively cheap.»

All in all, «I think people will continue to look for bargains there,» Stone said. And value? «That’s a good place to hunt.»



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Target is the retail trade of 2019, with the stock up nearly 90%

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Target CEO Brian Cornell appears on CNBC after ringing the opening bell at the New York Stock Exchange on the morning of November 28, 2014 in New York City.

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Target is far and away the best performing retail stock of 2019.

After reporting third-quarter results on Wednesday that crushed Wall Street’s expectation, Target shares rose 12% from its previous close of $110.85. Target’s shares are up nearly 90% this year, topping even the strong performances of TJX Companies and Walmart, and is this year’s sixth-best performing stock on the S&P 500 index.

«We thought the market was already pricing in more of TGT’s progress, but today’s results (esp. margin expansion) came in well above even the most bullish expectations,» Goldman Sachs wrote in a note to investors.

Target also raised its profit outlook for the full year, ahead of the all-important holiday shopping season, while cutting the cost of handling online orders.

«Overall, we believe Target’s strategic transformation initiatives—price investment in everyday items, differentiating merchandising with new private brands, remodeling stores, and investing in digital and delivery, including Shipt—are resonating with consumers,» Telsey Advisory Group wrote in a note to investors.

Options trader Pete Najarian believes Target’s stock will climb even higher, saying on CNBC’s «Halftime Report» that he expects more strong revenue from the company’s investment in private label products.

«When you look at what’s going on with Target – whether it’s in the grocery space or the rest of the store, and there’s five different segments to their store in terms of revenue streams – they have private label everywhere and that is something that will be huge for them. That just helps and is something that’s going to kick in for Target in the future as well,» Najarian said.

– CNBC’s Michael Bloom and Lauren Thomas contributed to this report.



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Electric truck company Nikola claims battery technology advancements

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Nikola Corp., the upstart manufacturer of zero-emission heavy trucks and other vehicles, claims to have achieved «game-changing» advancements in battery-cell technology that will enable its hydrogen-electric trucks to drive farther between charges for lower cost and with reduced environmental impact.

The Phoenix-based company, which plans to begin commercial truck production at a plant in central Arizona in 2022, said it has created the world’s first free-standing electrode automotive battery, with heightened «energy density» or storage capacity.

The factory, in Coolidge, could employ more than 3,000 people. It is scheduled to break ground near the middle of next year.

After 800 cycles or charges, a conventional lithium-ion battery will be degraded, Trevor Milton, Nikola’s CEO and founder, said in an interview Tuesday. But the company’s newly developed battery can hit 2,000 cycles, which translates to about 1 million truck miles driven over seven to eight years of typical use, he said.

Large, fully loaded electric trucks powered by Nikola’s prototype battery could drive 800 miles between charges, while trucks powered by its new hydrogen-electric fuel cells could travel 1,000 miles between stops and can be refueled with hydrogen in 15 minutes.

The privately held company claims to have $14 billion of hydrogen-electric truck reservations from customers including Anheuser-Busch and US Xpress. «It will take us 10 years to get caught up» fulfilling those orders, Milton said.

The company plans to unveil the new battery technology in greater detail at its Nikola World 2020 demonstration. This year’s event was held in Scottsdale in April. The venue and date of next year’s conference have yet to be announced.

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Longer range, no emissions

The technology also could extend the range of existing electric passenger cars to 600 miles from around 300 miles, with little or no increase in battery size and weight, though Milton said Nikola won’t engage in passenger-vehicle production.

However, the company does plan to share the intellectual property with other manufacturers, including automakers, that pay to be part of a licensing consortium.

«Our goal is to eliminate emissions around the globe,» Milton said. «But we can’t do it all by ourselves.»

According to Nikola, the company’s batteries are lighter, less expensive to produce and less prone to short-circuiting (which can start fires) compared to conventional lithium-ion battery cells. Also, their components are easy to recycle and more environmentally friendly for landfills because they don’t contain toxic elements such as nickel, cobalt, magnesium and aluminum, Milton said.

Eliminating those components also makes for less-expensive production, he said.

To bring the new battery closer to production, Nikola is purchasing a company with approximately 20 key employees, including 15 battery engineers with doctorate degrees and five with master’s degrees. They will not be headquartered in Phoenix, Milton said, who didn’t name the company.

By year-end, Nikola will employ around 240 people in Phoenix, at its headquarters and testing center south of Sky Harbor International Airport, Milton said.

Big, bold promises

Nikola, a company just 6 years old, has upended the automotive world with its claims of higher-powered, less expensive, more environmentally friendly batteries and other technology.

In an interview, Milton conceded the claims might seem far-fetched.

However, «everything we’ve ever promised, we have delivered on,» he said.

That has included the world’s largest hydrogen fueling station, at the company’s Phoenix headquarters, the most advanced fuel-cell heavy truck and the most advanced off-road vehicles, also powered by zero-emissions technology.

Among other ventures, the company is developing all-electric off-road vehicles, jet skis and Hummer-like military vehicles, and it plans to develop a North American network of hydrogen fueling stations.

«We’ve made claims that seem crazy, but we’ve lived up to every one of them,» Milton said while transitioning to another one: «We’ve made the biggest impact on zero-emissions compared to anyone in the world.»

At least some big investors seem to agree: Industrial companies Bosch, Hanwha and CNH Industrial in recent weeks have announced investments totaling $100 million or more each in Nikola.

Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616. 



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