Well reveal one of the best investment ideas the smart money is getting into. Halftime report starts right now. Welcome on jon, pete, and carey firestone the ceo of arias Asset Management we focus on the russell 2000, which has come alive, confirming to many that the reportsetting rally has room to go the russell outperforms the major averages for the last three months. Certainly since 2018, theres been a significant underperformance whats interesting about 2019 is both for passive and an active funds, youre seeing outflows in small caps a thats qu50i9 contrary the composition of small caps is the problem, so small caps are carrying in overweight to financials relative to large caps, then caring in underweight to technology and consumer discretionary, relative to large caps so the composition is the problem. I agree with the premise in 2020 it could be critical in driving the overall indices higher, and i think you want to have inclusion of small caps and increase your exposure to it yeah, but the small caps, yeah, but the small caps now the small caps have come alive. The russell has joined everything else. Its broadened out the rally as that continues into 2020, that can only be a bullish sign for the overall market. Sure. I think what you saw is people realizing after the yield curves inversion went back to normal that the market had legs, and to go through the rest of the year not worrying about a recession you hadnt been investmented in the market, prachs the place to put money is where there was underperformance that would be the russell 200 and smallercap names. The inflow of new money coming in on the sun lines i think went in that direction rather than tos winners. If you looked at apple or facebook so high up. Also if youre thinking about how to avoid that trade warheadwind, youve got all the regional banks, you have a lot of Smaller Companies that do not have as much International Exposure in the smallcap sector, so i think perhaps its a safer place to put money. Doc, you know, we point out okay, they come alive. So therefore theres more room to run im lucky enough for the unusual activity i have two pulp basically unusual by up institutions, in other words, large and in many case these at the stocks have already caught up. Theres an awful lot of stocks that are still way behind, and when the that institutions get involved there, its just, you know, like in a crowded theater when youre running through one exit, scott. Youre going to have that flood of paper and cash into these names, which will lift them up very quickly much quicker than their largecap counterparts. Pete, lets play some ball. If we think theres room to go, give us some names. I dont look at but in this space, its one that i like a lot. This is something mike daughter six, eight months ago, said, hey, dad, this is an incredible play the more i looked into it, its a company with great growth thank goodness for my daughter pointing this out to me. Lucken coffee is attacking starbucks in their own country, obviously. They may start to take over when we look it he china markets. Luke lukelu luckin is a good name. So just put some numbers on, if you bring in a Million Dollars worth of goods at a duty of 2 to 3 , now youre paying 25 , which is 250,000, in a low inflationary environment, you have to raise your prices or you take that lit. So you have to be very careful they could move their supply chains in terms of the way im playing it cloudair, i continue to own that. I aided over the last week, week and a half, its too technology, of course, and also zogenics, its down a bit today with the b bioi cant care less, is this a story that i want to own you need trade obviously to be better in 20. Right. You need growth to be better. You cant have conversations about recession every other week, if you think that small adapts will continue to perform, right . You cant be worried about where growth is going to be. You need to have an environment. Historically small caps have led the market up and let the market down. The fact theyre moving up now can give you encouragement there was a statistic put out by cibc that said over 2019 there have been 90 easings by Central Banks around the world so youve got Central Banks, including the u. S. , the fed, that are poised to make sure you dont get a recession going forward. Im not worried about the recession, but i am worried about a lark of Earnings Growth. Youre worried about attracting earnings. Thats my concern. An article today in the adjourning about that very topic, a growing share of s p 500 companies edgarnings are contracting. You have another year of multiple expansion i dont see that happening to me thats the rink in the market not necessarily that it cratered, but this is as good as it gets. The turbobooster of multiple expansion only goes so far. You saw the benefit in 2018 that was a huge 26 year over year this has been a weak year, but not as weak as people expected, remember you know, it was supposed to be Third Quarter earnings, and they are sort of flat down 1 if we look at the next year i think most people have between 8 and 9 . Thats reasonable. If you have a sector, for example, the banks that we are talking about, all those regional banks if Interest Rates do not go down, and i think most people are betting there wont be any Interest Rates cuts, thats good for them. Out of all the picks that i have in prove any on the small caps, why no financials . I thought financials were a good place to be now. There are financials you can certainly add in there. But not in any of picks on the desk. I gave you a real estate company, thats financial. To some extent its a financial. Its not a pure play. Small cap. I gave a billion market cap in 2. 6, a biotech biohaven. Most of the regional banks are bigger than that. One of the reasons my list is absent financials is because youre going to need to know if youre going to be steepening in the yield curve. Thats tough to figure out i would rather go to other places within the smallcap world. Steve identifies the environment where you had multiple expansions in 19 thats a great time to look at small caps if Earnings Growth is moderating in large capitals, the opportunities youre going to find you are in small caps for potential growth, potentially even in mid caps a couple names i have mentioned i own guide wire software, they report at the earnings tonight theyre delivering Cloud Software to the Insurance Industry if this company misses, you want to buy on a pullback another is dunkin brands. Its a small cap, because they view the large brand within in country, it must be bigger than that lastly, chewy, which got the upgrade from moren stanley of the recent ipos, i think thats an opportunity. Only 25 of the new ipos were smile caps november 14th i talked about gentex, what do they do in demable glass, its a special for play, but this is up 38 year to date i think its you will three, four dollars, mid 24s when we cited it now its thats the example of the outperformance one that they are not involved in, but i also own is air transport group. These guys, its logistics its almost exclusive boeing logistics and transportation, its only up 4 . Watch that one in 2020. The other area i wanted to talk about, khost interest interesting, its barely higher. Well, there is no opportunity to be found there . In the near term theres a lot of opportunity theres an opec related trade where youre seeing speculative money coming in longer term youre having significant maturities in energy whos able to take advantage in that environment lets talk about the oxi deal. Its not worked out well for occidental carl icahn is pretty accurate. Look at the big three. They have the pleat. Thiel be able to take advantage. I think its about the bessa names now. But a grade trading market. What youre telling me is theres little conviction. Right for what joe pointed out, you look at the balance sheets, theres a reason why theres not very High Conviction go back to marathon petroleum. There are different parts of the energy space that are trading well if you want low volatility, but something thats a quality name, and he founder does as well. How about kmi . This is a 10 yielder. You lost 20 , and 26 of u. S. Buyers, and those are 9 funds that have esg portfolios, which has been the fasters area of growth in Asset Management they will buy fossil fuel stocks, so in order to be riding energy, you have to be right on the commodity itself i havent own energy for a long time to think i can outguess what the saudis will do, what will happen in the middle east in terms of geopolitical issues, thats just too difficult. Youre saying the esg trends, which, by the way, i was at a dinner last evening that we hosted with an investment firm, and esg was a big topic of conversation about where the opportunity is going to be, where, you know, pension funds, endowments are looking for tuned. To some extent, but its only 6 of the s p. You need to reset you need them to all clean out the portfolios its the fastest growth in Asset Management ive seen in i dont know how long. Because investors are demanding that it be. Exactly thats a marginal buyer. Thats a core buyer that no longer exists. Is there any part thats more important than the other that impacts so its environmental, social and governance ive done so much work on something im doing, its all about sustainability they ignore governments. Governments is bad everywhere. Its like a joke lets make sure we have enough minorities and females on boards they should have been doing that for years. Its nothing else. Sustainability controls it all the Energy Industry has not had successful management, so very quietly they tried to diversify away from oil. Where did they go . Natural gas. That has not worked out at all, now trading a 2. 3. The Management Strategy has failed and let them down its increased debt levels, because they have deals that just havent worked. Have you look at Chesapeake Energy 70 cents a share. If you looked at over time, and i went back from 2008 to the present to see where there was divergence between the Top Performing sector and the worst sector this year energy is down 15 so that 55 thats for two years. The only times that that has happened for 11 years, its three times, its this year, it was in 200910 again it was technology and health care, technology huge health care was far below. And then in 1415 health care up 22 , energy down 29 . The following year in all cases, the bottomperforming sector had a much brer year than the topperforming sector. Again it can be hurt by esg, and im sure it will, but theres no the whole Energy Sector can fit into microsoft now if you pick the highquality names, whether its conoco, chevron, phillips, there are a few that can pay the dividend. I think its worth the bet i think its wishful thinking. Thats the fangs, i bring those up today facebook has had an incredible year and alphabet so stieffel, facebook you go upgraded to a buy. So, you know, look, facebook has had a huge run maybe you have issues with that call, but giving the news of alphabet, the google guys are stepping around, this is sundar shining. Alphabet has had a market year its done what the s p has done. A market year the last cup 8 years. Not a big multiple, though. Its not had anything really but bad headlines. So to my point, i think and jim cramer yesterday, theyve had a series of missteps by executives at google now i think that could be turning around in other words, to carries point about outperformance and underperformance, i would look perhaps for google to outperform or alphabet to outperform versus some of these others that have semimonopoly positions. Cramer said alphabet is a buy. For the first time they have an ambassador, someone in the likes of tim cook that can go to washington, d. C. , that can sit down, dialogue about the but hes been doing that. Hes been the face of alphabet almost since he got there. But theres i think thats his going to lend him to to the increasing buyback plan we wanted them to emulate whats been done so successfully. Theres now the indication thee go in that direction. How about giving us a dividend yield i think theres a lot of different levers, with the change going on right now, maybe theyll finally have the guts to put it out there there is a reason this name is trailing some of those other names. And so many guys wanted to dump this stock, they were wrong, this thing continues to go to the up side. Theres two big companies, trying to move their stock to the up side. See i dont think anything really changing. Financially at google. Why, though think they still control the compete. Theyre going to the board, so think wont do a buyback. What was it, just a couple two, three quarters ago, where they laid an egg i lice whereas facebook has such incredit growth with instagram that they can cover up the spenting the stock got crushed. Thats why you have the dont always run from these storks, like in the case of facebook, where it suddenly set, looker people bought into the idea whether it worked or not apples price target goes to 300 at citi. Joke. That you guys laughed at. Conviction buy at 257. So its interesting i think both of them are atrackedive. We own both in terms of a relative position. Its much more important, because its not sort of the s p. On everybody does own to be overweig overweight, i really have to own a 6 so were even weighted we own it. I think its a decent call but alibaba, i think will be a better performing stock. We have baba calls being bought today, buying them for next week. Next week is expiring as well. So theres a lot of activity out there. I think the real difference, from a chart perspective, you have a lot more volatility, a lot more thats moving to the up side than the down side where weve had some direct moves and theres a recovery so i like baba, but i would like it as a trade. Apple, i own that things forever. Im surprised we havent seen more notes, giving the muted sideways performance im surprised youre not seeing that as a top pick for 2020. I dont know i think its one of the most fun analyzable company out there. 15 , 20 revenues . Its really about the margin expansion. The stock goes up on margin expansion. Leave it there okay with me. Heres what else is coming up on the half announcer nike is doing it shares up nearly 30 this year, and Goldman Sachs thinking it has more room to run well see if our panel of experts think so, too. Its our call of the day. Plus we want to hear from you. The desk is ready to answer your questions. Halftime reportwi th scott wapner and the traders is back in two minutes we offer commissionfree online u. S. Stock and etf trades. And, when you open a new Fidelity Brokerage account, your cash is automatically invested at a great rate thats 21 times more than schwabs. Plus, fidelitys leading price improvement on trades saved investors hundreds of millions of dollars last year. Thats why fidelity continues to lead the industry in value while our competition continues to talk. Talk fidelity. Talk so servicenow put your workflows immhm. Cloud, huh . Your employees must love you. Thank you. Ah, you could say that. So how are things with you guys . Great. Thank you. Thank you, sir. Lunch next week . Terrific. Say hi to the team. Will do. Call my office, i will. Sounds good. Alrighty. Servicenow. Works for you. Welcome back as to Halftime Report. Im seema mody i want to draw your attention to shares of 3m, the industrial giant trading down by as much as 2. 5 on fresh comments by mike roman add a credit sweet industrial complex, saying, quote i just got back from europe i would say theres still a lot of uncertainty he goes on to say that china automotive, electronics, theyve been challenging us this year, despite encouraging comments from china on the trade front, the worst performing sector this week seema, thank you. Nike shares up nearly 30 . And today Goldman Sachs goes all in on the name they upgraded to buy, conviction buy, the whoa buy, got to buy it its our call of the day pete, you dont own nike. You think theyre wrong not necessarily its up for all the right reasons, scott they have done a magnificent job in navigating through a different time theyre going all these Different Directions but youre talking about a company that its growth rate is about call it 5 , 7 , but the p. E. , if you look at forward its about 28, the present is about 35 you have a huge p. E. In lose lulu, but i still choose to be a lulu theres a lot of inexpensive names. Skechers being one of them i think its a twohorse race at that level. Adidas is much smaller nighter, if you walk in there, they dominate the shoe space so very, very dominant there and i just think thust one of the best, to your point, Global Brands lulu does not discount so theyre able to protect price. Nike is in the same position. Its sort of apples to oranges. Were not comparing nike to lulu agreed, which is one of the reasons why its good. How Many Companies can go to amazon and say were not going to selling on your say anymore. Theyve had problem before, and they get themselves out of it and figure out the way. The earnings keep growing. We dont happen to own it. Thats been a mistake. Anyone selling other groups because you dont want to own traditional retailers, oldline Consumer Brands that are fading, the money goes into a name like nike so theyre a real beneficiary of people looking for a consumer type of name that they can feel comfortable with lets pit vote to the shakeup at United Airlinesunits oscar munoz is stepping do you think. Scott kirby has president of the airline since hired by munoz to come over to american, where he was president , come to united and essential fix the route knelt work this is essential an underperforming airline. Under kirby that has changed dramatically he said, look were going to at 4 to 6 capacity, more flights here in smaller cities in the United States going through the hubs of united that will produce efficiency, generate greater revenue, and that strategy has paid off, scot scott. Oscar munoz i