Top Morningstar strategist David Sekera has made a significant assertion about the current market. He firmly believes that there is one sector that truly 'deserves a place in everybody’s portfolio' - the energy sector. This perspective has sparked considerable interest and debate among investors.

Uncover the Energy Sector's Promising Future with Morningstar

Energy Sector's Current Trading Position

Speaking to CNBC’s “Street Signs Asia” last week, David Sekera, the firm’s U.S. markets strategist, pointed out that the energy sector is currently trading at a 5% discount. This presents an attractive opportunity, especially if we move into a more reflationary environment later in 2025. Such a stance is not isolated; George Bull, chairman at Sander Morris, and Aaron Dunn, portfolio manager at Morgan Stanley’s U.S. Value Fund, also share a bullish outlook on the energy sector. This is largely due to President-elect Donald Trump's intention to combat inflation by reducing energy costs. Stocks within the energy theme that Sekera is betting on include Exxon Mobil and Devon Energy. Morningstar has bestowed a four-star rating on Devon Energy, noting that it is trading at a 22% discount to its fair value. Exxon Mobile, on the other hand, has a three-star rating and is trading at a 12% discount. The investment research company grades stocks from one to five stars, with the top rating indicating that the shares are undervalued. This shows the potential value that lies within the energy sector.

Impact of Trump's Victory on U.S. Stocks

U.S. stocks reached new highs following Trump's victory in the U.S. presidential elections. However, since then, they have taken a breather. Sekera explained that at this point, whether we call it the Trump bump or the Trump rally, according to their valuations, it has run its course. He expects further short-term gains to be quite 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. Currently, U.S. stocks are trading around 6% higher than their fair value.

Morningstar's Stance on U.S. Equities

Against this backdrop, Morningstar is maintaining its “market weight” stance on U.S. equities. Sekara explained that there is just enough tailwinds to overcome the headwinds they are currently facing. One of the headwinds he foresees is a moderation in inflation levels to below the 2% target set by the U.S. Federal Reserve. Additionally, he expects more interest rate cuts in 2025. The strategist also anticipates that long-term Treasury yields will 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%. This indicates the complex dynamics at play in the market and the importance of considering various factors when making investment decisions.