Over the past year, the momentum trade, especially in the mega-cap tech stocks, has carried the markets higher. Investors chasing performance have led to index concentration and a risky, overcrowded trade in a handful of mega-cap stocks. An unwind of this trade could be positive for value, especially for Dow stocks to buy on the dip.

So far, growth stocks related to the AI trade have been the key driving force behind the S&P 500’s bull run. However, the valuations in these stocks are becoming frothy and pose an unfavorable risk-reward. Therefore, if you are looking for upside, you can find better setups in Dow stocks to buy on the dip.

The following Dow stocks are good candidates for consideration. At these levels, they are significantly below their 52-week highs and their current valuations are lower than their historical averages. Furthermore, earnings are due for rebound meaning these stocks offer substantial upside.

Nike (NKE)

Athleisure and footwear giant Nike (NYSE:NKE) has fallen over 40% from its November 2021 highs. Meanwhile, earnings estimates have dropped by over 35% over the same period. However, due to a reset in earnings expectations and a lower valuation, it’s one of the top Dow stocks to buy on the dip.

There are several reasons to be bullish. First, after the decline, Nike’s valuation is at a five-year trough, making it a bargain. As of this writing, its forward non-GAAP price-to-earnings ratio is 26 compared to the five-year average of 35. That’s a steep discount for a stock Bank of America thinks can achieve mid-single-digit revenue growth and continue to expand margins.

Another major catalyst for Nike is the upcoming Olympics. Historically, the stock has benefited from the new products and marketing around the games. This year, the company is implementing a similar playbook and revealed its new collection in April. The excitement around the new products could trigger a return to growth.

Lastly, management has focused on cost-saving initiatives to boost productivity and earnings. It plans to cut $2 billion in costs over a three-year period. With trough valuations, new products and cost cuts, NKE stock has the catalysts needed to soar.

Walt Disney (DIS)

After a bruising battle with activist Nelson Peltz, Walt Disney’s (NYSE:DIS) management emerged victorious. Peltz could not gain the Board seats needed to drive his activist changes. Since then, the stock has dropped over 16%, presenting a buy opportunity.

Since Bob Iger got back at Disney, he has made significant steps to boost profitability. The first pledge was to achieve profitability in the streaming business, Disney Plus. This goal is already in sight as management disclosed in Q2 FY2024 earnings that they are on track to achieve combined streaming profitability in Q4 fiscal year 2024.

Meanwhile, the Experiences segment remains a stalwart, achieving 10% year-over-year revenue growth. Domestic parks grew by 7%, but the highlight was international parks and experiences, which grew by 29% from $1.1 billion to $1.5 billion. Even better, margins expanded by 60 basis points and operating income grew by 12%.

Based on these improvements, Disney ranks highly among the Dow stocks to buy on the dip. The turnaround from peak losses in 2022 to profitability has been impressive. Due to this turnaround, management raised their full year adjusted EPS growth target to 25%. Moreover, the company is on track to generate $8 billion in free cash flow and $14 billion of cash from operations.

McDonald’s (MCD)

In an overheated market, playing defense can be a prudent move. Restaurant giant McDonald’s (NYSE:MCD) is one consumer staple stock that has pulled back to attractive levels. Signs of consumer pushback have hit the stock, but it has taken measures to curb this threat.

To adjust to the consumer, the restaurant chain is launching a new promotion to boost traffic. The promotion begins on June 25 and introduces a $5 menu. The new value menu includes a McChicken or McDouble, 4-piece Chicken McNuggets, small fries, and a small soft drink. This promotion aims to draw in customers who are feeling the financial pinch.

UBS analysts expect the value-focused menus, new products in coming quarters and increased marketing will drive a positive inflection in U.S. sales. In terms of the long term, the restaurant chain is still one of the most valuable global brands. Furthermore, its enormous global scale provides numerous cost efficiencies that enable it to drive value for shareholders.

As of this writing, MCD stock is one of the bargain Dow stocks to buy on the dip. At 21 times forward earnings, it’s a bargain. And to crown it, you earn a growing 2.5% dividend in a dividend aristocrat that has raised its dividend for 49 years in a row.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.