What Sectors Are Most Undervalued?
We offer three picks in the most undervalued sector, energy.
|Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.|
Given the market turmoil we’ve experienced during the past few weeks, it’s time check in on the Morningstar Market Fair Value.
This metric shows how big of a gap, on average, we see between market prices and our estimate of intrinsic value across the entire market or a specific sector.
The current ratio for all rated stocks is 0.74. This indicates that the market is about 26% undervalued today. The market hasn’t been this undervalued by our metrics since 2011.
No sector is overvalued today. With a ratio of 0.85, the consumer defensive and utilities sectors are the closest to fairly valued.
In particular, utilities have been overvalued for a long time, as investors have sought out these stocks for their high yields. This pullback in prices offers a buying opportunity for investors.
The most undervalued sector is energy at 0.44--that's 56% below our estimate of intrinsic value.
Some of our top picks in the energy sector include Diamondback Energy (FANG), Enbridge (ENB), and Cenovus Energy (CVE).