Low Rates, Mixed Valuations: Searching for Growth in an Uncertain Economy

Despite mixed economic signals that have left investors jittery, financial markets continue to fund new growth opportunities, according to speakers at last month's Wharton's 2004 Finance Conference.

According to Hough, managers at American Express think of growth as a triangle. On one side of the triangle are measures, such as revenue, that are reported to the investment community. The other side of the triangle is made up of more internal considerations, like return on equity. The base of the triangle is stability. "What we have found is that companies that return the greatest shareholder value on average over time are companies that deliver growth in a very stable environment. What the investment community does not like are surprises."

The strength of equity markets varies by industry, Barnes added, but because many executives feel their firms are perpetually undervalued, they put off going into equity markets until there is a better time. When their stock eventually does rise, they often regret not having made the move earlier. "When you don't have to issue debt or equity is the time to do it so you are ready for future opportunities."

In response to a question about the role of rating agencies, Doherty pointed out that his firm is part of a 300-year-old bank that has been making credit decisions long before there were rating agencies. "There's always a tension between how much you rely on what the rating agencies believe or say, versus how much your own intuition tells you. There are many other measurements that are more real-time than the rating agencies. These agencies do provide a set of data that a large number of investors and observers of credit tend to rely on as a starting point and a pathway forward."