Morningstar analyst Ann Gilpin says the investment research group believes the Dow Jones Industrial Average is now selling at a 30 percent discount. The Dow’s fair value is about 12,500, Gilpin says, noting that “our coverage universe [is] trading at the steepest discounts we’ve seen since we started valuing equities”.

While acknowledging the weakness of the economy and the bloated levels at which stocks were selling before the recent crash, Gilpin says that the backlash against stocks has been too great. “We think Mr. Market has overreacted to the deluge of negative news in recent months,” she says, referring to the “Mr. Market” label that the great Benjamin Graham used to describe the stock market.

Gilpin says that, even assuming that GM is virtually worthless, and taking into account the many fair value cuts Morningstar has made in its analysis of Dow stocks in recent months, the Dow is a good long-term value. “Our analysts value companies as businesses that generate cash flows over very long periods of time,” she says. “We’re mindful of the weak economy and how that impacts near-term cash flows, but we have a much more tempered valuation methodology than Mr. Market, who is governed by short-term whims. But don’t let Mr. Market’s gloom and despair fear you. As Warren Buffett advises and as our fair value estimates imply, you might do well to turn that fear into greed.”

Keep in mind, however, that Morningstar wasn’t ahead of the curve on the market crash. Back in February, it said the Dow’s fair value was about 14,000, and that the index was selling at a 17 percent discount at that time.