Where to invest in the U.S.

Last year, the U.S. market was trading above its 10-year average.

That’s no longer the case, says Michael Orndorff, vice-president and portfolio manager at American Century Investments in Kansas City, Missouri. He co-manages the Renaissance U.S. Equity Growth Fund.

“With the recent market pullback, you’ve got [U.S.] market multiples that are really close to the 10-year average, whereas over the last year they’ve been trading above that rate,” he says. “Employment growth is still reasonably healthy; the U.S. is a net beneficiary of lower gas prices, and the Fed has become a little more tentative given all the other concerns about future rate hikes.”

Read:

• Is recovery on the way for the U.S. economy?
• Fed disappointed by wage growth

And the strong greenback “has been a drag on both revenue and earnings. Companies are really just starting to cycle through, and should get some benefit. ”

Going forward, he says, “[With] market multiples coming down and the backdrop still being reasonably constructive for the U.S., I think it’s an attractive market to be invested in.”

He’s overweight two sectors: healthcare and technology.

Based on the Q4 results, healthcare companies “continue to beat revenue and earnings [forecasts], and the outlook is still generally favourable. Foreign currency is a drag [in 2016], but all in all, the demand picture still looks reasonably strong.”

Read: Tap into strength of U.S. consumers

Two healthcare names Orndorff likes are Zoetis and Baxter. “Zoetis serves the animal health industry, [for] both the companion animal and livestock. [It] continues to see solid growth and [has] profitability improvement plans that will further boost earnings.”

Baxter is a hospital equipment supplier, he adds, and it’s “seeing a nice steady rate of growth. Admissions into hospitals are still at reasonable levels. And, like Zoetis, [the company] has a profitability improvement plan to lift earnings.”

The technology sector also holds promise, says Orndorff. He’s added exposure to the sector, and favours names such as Facebook and Google. “These are both companies that have strong platforms that continue to benefit from the migration of ad spending from traditional means to the digital space. They’ve both experienced an acceleration in the rate of revenue growth.”

Read: Why to watch a company’s adjusted earnings

Overall, he says, “We’re looking for companies that have decent top-line growth that’s supported by the market, but then further enhanced by some new product introduction [and] geographical expansion.”

Read:

Buffett says U.S. economy is “alive and well”

2016 investing preview