American Funds portfolio manager Tim Armour discusses his outlook for the U.S. economy and U.S. company growth.
Kevin Clifford: If we start looking here in North America, the United States market, it’s been a volatile year. As you reflect on ‘15 and look ahead to ‘16, what thoughts are top of mind for you, Tim?
Tim Armour: Kevin, starting out on ‘15, really it was a year of ups and downs, as you’ve talked about, and really because of what’s going on in the economy. We’re still having this bumpy recovery coming out of the financial crisis. The Fed has been very accommodative , obviously, and corporations are doing better, but they’re gradually doing better. It’s a slow, drawn-out process.
So if we look at revenue growth or earnings growth, in most corporations today, revenue growth is pretty anemic because the top line just is not getting a lot of sales growth. In many cases, companies have been able to improve their margins, which has resulted in faster earnings growth than revenue growth. But margins are at an all-time high today for U.S. corporations, so it has really made it difficult to squeeze more and more earnings out of that slower growth.
As you know, what we do really well is identify individual companies, so my broad overview comments really pertain to the market. But on an individual company level, there are lots of companies that have much more exciting top-line growth and bottom-line growth, which gets us pretty excited about 2016 when we look forward at the U.S. market.
I would say, relative to the U.S. for 2016, today we find ourselves at a period where the market’s probably pretty fully valued. But again, when you look into individual companies, there are a lot of opportunities there. And what we’ve seen in particular since late summer, August of this year, is the volatility has begun to pick up. So certain companies are getting much more volatile in their share price, which has created opportunities for us, both buying and selling: good-quality companies that we like, that we’ve identified, that we want to own for our investors.
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