The Dow Jones Industrial Average had a down 2022 as the index dropped 9% on the year. Investors often turn to the Dow as a bellwether for how the stock market is doing. Plus, owning a piece of some of the most successful businesses out there could make for a solid investment strategy. In fact, over the past 10 years, the Dow has tripled in value. 

Within the index, readers might want to focus on one company in particular as a possible portfolio addition. Continue reading to see if Home Depot (HD -0.31%), a top Dow stock that was down 24% in 2022, makes for a smart buy today. 

Don't question the quality 

With trailing-12-month sales of $157 billion, Home Depot is the clear leader of the massive home-improvement industry. The business has found tremendous success by catering to both DIY and professional customers, helping them complete whatever renovation projects they're working on with the right tools, supplies, and guidance. 

While Home Depot put up strong growth throughout the pandemic, it has seen its gains slow down dramatically. In the most recent quarter (Q3 2022, ended Oct. 30), revenue and same-store sales increased 5.6% and 4.3%, respectively, versus the prior-year period. To be fair, this is still respectable growth given the macro environment. 

Speaking of the economy, many investors are concerned about how the cooling housing market will impact Home Depot's business. A 30-year fixed mortgage rate that's at 6.5%, the highest level in over a decade, has certainly hurt rising home values in the U.S. 

But shareholders shouldn't worry at all about Home Depot's ability to weather any storm in the near term. If the U.S. does enter an official recession this year, it will definitely hurt sales of new homes. But this same situation might encourage these people to focus on renovation projects instead. And this will keep demand relatively stable for Home Depot. 

"Despite near-term uncertainties, we believe the long-term underpinnings of demand for home improvement remain strong and that we are well-positioned to leverage our distinct competitive advantages to capitalize on compelling growth opportunities in our space," CEO Ted Decker highlighted on the Q3 2022 earnings call. 

Management's encouraging tone should ease any investor concerns. 

Looking at the valuation 

There's no doubt that from a quality perspective, Home Depot is a sound enterprise. It's the leader in its industry with solid growth and strong financials, but it also has shown its resilient nature when economic times are not as robust. These are favorable characteristics any investor would be delighted with in a company.

However, there is another consideration to keep in mind. And that is the topic of valuation. After the stock's big price drop in 2022, Home Depot shares are selling at a price-to-earnings (P/E) ratio of 19. This makes the stock cheaper than smaller rival Lowe's despite Home Depot posting better growth in recent quarters and better profitability and returns on invested capital historically. 

The valuation is certainly attractive at first glance. But what makes owning Home Depot's stock even more compelling is management's capital-allocation policy. Home Depot currently pays a 2.4% dividend yield, an amount that has increased consistently since the business first started paying one out in 1987.

Additionally, Home Depot engages in share buybacks, to the tune of $5.1 billion during the first nine months of fiscal 2022, an action that boosts per-share earnings for remaining shareholders. It also signals to the market that the leadership team believes the stock price to be undervalued. 

Investors could do much worse than adding Home Depot to their portfolios in 2023.