Dow Stocks Down Over 20%, But These Two Remain Strong

The Dow Jones Industrial Average tracks 30 industry leaders, providing a benchmark for identifying solid investments. Two stocks that have caught my attention are Home Depot (NYSE: HD) and McDonald's (NYSE: MCD), both of which have fallen more than 20% from their highs.

Home Depot is the leading home improvement retailer, but its sales have been impacted by a sluggish housing market, pushing its stock down 25%. The dip has also lifted the forward dividend yield to 2.84%, based on its $2.33 quarterly payment.

The company's large store base and strong competitive position make it difficult for others to replicate. Home Depot generated $169 billion in revenue over the last year, but that's still relatively small compared to its addressable market of $1.1 trillion. Its stores function as local hubs in residential markets across the U.S., with a recent rollout of express delivery nationwide aiming to get tens of thousands of items to customers in under three hours.

McDonald's, on the other hand, has a highly profitable franchise model that generates gobs of free cash flow. The company typically owns or leases the land and buildings, while franchisees pay for the equipment, seating, and decor. This setup earns McDonald's a large share of its revenue from rents and royalties rather than burgers and fries.

While both stocks have fallen, their competitive positions remain strong, with Home Depot controlling just 15% of the $1.1 trillion home improvement market and McDonald's having nearly 220 million active loyalty users. The dip has pulled the forward price-to-earnings multiple down to 20 for McDonald's, which looks reasonable enough.