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Stock Strategist

We Think the Dow Is Trading at a 30% Discount

Our Morningstar fair value estimates imply a Dow value of at least 12,500.

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Make no mistake about it, Mr. Market is very depressed. Newspapers are flush with headlines of impending doom and economic peril. The Dow is trading at levels not seen since 2003, with some of the components' stock prices trading at multidecade lows, and any investor checking his or her investment portfolio is certain to be singing the blues.

However, as the father of value investing, Ben Graham, guides us, the mercurial Mr. Market can be our friend, as his overreaction often presents us with great buying opportunities. Here at Morningstar, we believe the market is providing several great long-term buying opportunities, with our coverage universe trading at the steepest discounts we've seen since we started valuing equities. In our opinion, we think a more selective group of companies, the Dow Jones Industrial Average, is undervalued by at least 30%.

Ann Gilpin has a position in the following securities mentioned above: BAC, C. Find out about Morningstar’s editorial policies.