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Quarter-End Insights

Energy Stocks Historically Cheap

We expect demand to catch up in 2021 and 2022.

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The Morningstar US Energy Index has continued to lag the broader domestic market, underperforming by 23.6% in the third quarter, as crude oil prices have remained stubbornly flat and well below the midcycle level of $55 per barrel West Texas Intermediate ($60/bbl Brent) that would incentivize the right level of development from swing producers like U.S. shale firms and OPEC. However, we believe the market is still extrapolating bottom-of-the-cycle crude prices to infinity, making energy stocks look historically cheap. Energy remains the most undervalued sector, trading at a 40% discount compared with a 7% discount for the overall market.

Energy stocks have lagged the broader market in 2020. - source: Morningstar

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.