All investors have to make choices about which stocks make better investments. It's not easy to pick between two strong companies, but examining both with a clear head will go a long way toward helping make the determination.

Two venerable companies, Walt Disney (DIS -1.08%) and Home Depot (HD -0.74%), have been successful through the years, building impressive franchises and brands. But which stock should you purchase? To answer that question, it's time to look closer at the underlying fundamentals.

Someone sitting in front of monitors.

Image source: Getty Images.

Disney trims down

Earlier this year, Disney management promised to cut costs by $5.5 billion, achieve profitability in its streaming business, focus on the guest experience at parks, and reinstate the dividend by the end of 2023, among other things. In taking these actions, Disney is giving activist investor Trian Fund Management most of what it wanted.

Still, some steps will prove easier to accomplish than others. For instance, the direct-to-consumer business, which includes Disney+, ESPN+, and Hulu, lost $1.1 billion in the first fiscal quarter, which ended on Dec. 31, 2022. That compares to a $593 million operating loss a year ago. This was despite revenue growing by 13% to $5.3 billion.

On the bright side, Disney has well-regarded media properties. The empire encompasses popular theme parks, television networks, and studios that produce content such as Walt Disney, Marvel, Pixar, and Twentieth Century. But while the stock price has essentially been flat compared to five years ago, the valuation looks rich. The price-to-earnings (P/E) ratio stands at 54 while the S&P 500 has a 22 multiple.

Home Depot faces slowdown

Home Depot may face some near-term challenges due to the housing market slowdown. Existing home sales have generally declined this year, including by 2.4% in March. That tends to put a crimp in home construction projects.

Last year, in the midst of a hot real estate market, Home Depot's same-store sales increased by 3.1% in the latest fiscal year, which ended on Jan. 29. They rose by only 0.3% in the fourth quarter and management expects flat comps this year.

But the company will likely reward patient investors. For starters, Home Depot's board of directors has raised dividends annually since 2010. This includes the recent 10% hike, sending a powerful signal about its long-term prospects.

While higher interest rates may crimp home purchases and borrowing for construction projects, they are cyclical and will rebound. Home Depot has been through many cycles in its history, including the Great Recession. Producing the largest sales in the home improvement retail segment, it's in a prime position to benefit.

The stock's valuation appears better than a couple of months ago with a P/E multiple of 19 compared to more than 21 in early February.

Disney has built a media empire, and Home Depot has become a popular destination for home improvement projects. But Home Depot's dividend history and better valuation make it a better buy.