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Stock Strategist

Five Energy Stocks for Your Radar Screen

Market uncertainty has presented us a handful of investment ideas.

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Since we ran a similar column in March, natural-gas prices have continued to fall, and they are now hovering around $6 per thousand cubic feet (mcf), nearly 60% lower than the $15 per mcf we saw last December. The drop in prices has been due to a seasonal drop in demand and a bump in production from new projects in addition to Gulf of Mexico production gradually being restored. While natural-gas prices have fallen, oil prices remain stubbornly high. For the better part of six weeks, oil prices have hovered around $70 per barrel thanks to persistently strong demand, production restraints, and potential supply shocks.

This disparity in prices has caused some uncertainty in the market, and as a result, energy stocks have been trading down. Since the beginning of May, the Dow Jones Oil and Gas Index has declined by nearly 8%. The sell-off has given us a handful of investment ideas in the upstream and midstream side of the business; we still feel, however, that the oil services and refining sectors of the industry remain overvalued. Within the upstream and midstream sectors, 53 stocks we follow are currently trading at a discount to their fair value estimates, while nine of those stocks garner our highest rating, 5 stars.

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