With wildfires raging and once-in-a-century hurricanes occurring every few years, Browne doesn’t think any serious arguments exist about the reality of climate change. “People will demand change; they are connecting A and B,” he says. “There will be a policy response even without a change in administration.”
States, companies and foreign governments already are initiating changes. “NextEra Energy is the best-performing public utility,” Browne observes, noting that it’s positioned as a green energy company and trades at 30 times earnings. “Other utility CEOs will take notice.”
Lower Equity Returns
All that said, NTAM sees U.S. equities returning 4.7% over the next five years, compared with 5.4% in Europe and emerging markets and 3.8% in Japan. This in spite of the firm’s belief that U.S. “valuations are elevated.”
In a low-return, low-interest rate world, a 5% return “means you get to keep everything you’ve earned and get a net return over inflation,” Browne says. But price-to-earnings multiples are likely to contract.
It’s natural that in a slow-growth economy the market is willing to pay a premium for companies that can consistently grow faster than GDP. But this concept has its limits.
“Visa’s net income has doubled in the last five years, but its valuation has more than tripled,” Browne says. “Can that happen again?” Maybe so, but it’s not “a prudent bet.”