Top Morningstar strategist David Sekera says there’s one sector that “deserves a place in everybody’s portfolio” right now — the energy sector. Speaking to CNBC’s “Street Signs Asia” last week, the firm’s U.S. markets strategist said the energy sector was trading at a 5% discount and is set to “do well, especially if we get into more of a reflationary environment later in 2025.” Sekera is not alone; George Bull, chairman at Sander Morris and Aaron Dunn, portfolio manager at Morgan Stanley’s U.S. Value Fund , are also bullish on the energy sector given President-elect Donald Trump’s desire to fight inflation by reducing energy costs. Stocks Sekara is betting on within the energy theme include Exxon Mobil and Devon Energy . Morningstar has a four-star rating on Devon Energy and says it is trading at a 22% discount to fair value. It has a three-star rating on Exxon Mobile, which it says is trading at a 12% discount. The investment research company gives stocks a rating of between one and five stars, with a top rating indicating that the shares are undervalued. ‘Priced to perfection’ U.S. stocks hit new highs following Trump’s victory in the U.S. presidential elections, but have since taken a breather. “At this point — whether you want to call it the Trump bump or the Trump rally — according to our valuations, I think it’s run its race,” Sekera said. And he expects further gains in the short-term to be “pretty limited.” “The U.S. stock market, at this point now, is priced to perfection, so I see limited upside until earnings start to catch up with valuations, and that may take at least a couple of quarters,” he added. Sekera says that U.S. stocks are now trading around 6% higher than their fair value. Against this backdrop, Morningstar is maintaining its “market weight” stance on U.S. equities, seeing as “there’s just enough tailwinds to overwhelm the headwinds that we’re seeing at this point in time,” Sekara explained. Among the headwinds he foresees is a moderation in inflation levels to below the 2% target penciled by the U.S. Federal Reserve, as well as more interest rate cuts in 2025. The strategist also expects long-term Treasury yields to come down to an average of 3.6% for the 10-year in 2025 and 3.2% in 2026. On Friday, the 10-year yield was trading around 4.428%
