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Coronavirus Zapped Energy Stocks

When will crude oil recover?

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

The Morningstar US Energy Index has lagged the broader domestic market. Energy stocks underperformed in the third quarter, as crude oil prices have been stubbornly flat and well below the midcycle level of $55/barrel for WTI crude that would incentivize the right level of development activity from swing producers like U.S. shale 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 is still the most undervalued industry sector, trading at a discount of about 30% to our intrinsic fair value estimates.