The near-term economic pain that will be felt by businesses and investors due to COVID-19 will be severe, but the longer-term impact may be relatively minor, according to Jeffrey Stafford, director of equity research, North America, at Morningstar.

“People are spending too much time thinking about how bad the second quarter will be, and not enough time thinking about the recovery that will occur in the second half of the year,” added Preston Caldwell, a Morningstar equity analyst. However, the upcoming second quarter is going to be “horrible,” he said.

Morningstar analysts and strategists discussed the current and future economic picture and gave their recommendations on particular market segments and companies during a “Market Outlook” webinar Thursday.

The modest 2% to 3% growth rate in GDP that was predicted for 2020 before the start of the year has now been reversed and will probably be a negative 3%, Stafford said. Globally, Morningstar now predicts a 1.4% decline in GDP for this year.

“Stocks are cheap now,” Caldwell said. “They are trading below their intrinsic value, and I do not know if we have seen the bottom yet because we are not sure what the news will hold” in the next weeks.

The recovery from the economic downturn this time will not take as long as the recovery after the Great Recession. “At that time, we had to reconfigure the pattern of economic resources. We will not have to do that this time,” Preston said. “Consumer and investor confidence was weak for years after the Great Recession. Once the virus is on the downslope, there is no reason confidence should not rebound fully this time.”

“We have seen an exaggeration of the [projected] impact of the economic shutdown,” Caldwell explained. “Seventy percent of the GDP is exempted from the shutdown and many of the remaining 30% of businesses that are shut down still have some people working.”

Looking at particular sectors, Stafford said, energy is the cheapest sector right now, but the current low oil prices are not sustainable. Travel, technology and utilities also are trading at a discount.

Damien Conover, director of strategy and health care at Morningstar, said that within the health-care sector, drug manufacturers are the most undervalued. “They will not take as much of a hit as other parts of the health-care sector,” he said. “Drug manufacturers will rebound in 2021 as methods of slowing the spread of the virus are developed.”

Companies within the health-care sector that will do particularly well include Zimmer Biomet, CNS Pharmaceuticals and Pfizer, he said.

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