Can one make the case for easing back into the U.S. stock market? The U.S. recession continues, and it's likely to continue through at least Q2, and probably through Q3. Meanwhile, credit market conditions, while they've improved since last fall, they're still constrained.
Further, the U.S. Treasury Secretary Timothy Geithner announced Tuesday that the United States government will commit up to an additional $2 trillion to encourage new lending and remove toxic assets in an effort to end the credit crunch.
Slack demand, and tight lending conditions: hardly the stuff that leads to double-digit earnings growth. Still, a very wise man, and investor, told yours truly repeatedly while growing up that at that point where gloom appears to be blocking out the light, that's the time to start amassing quality names and other bargains. The investor made most of his money in stocks this way.
With the above in mind, consider scooping up some shares of Stanley Works (NYSE: SWK), currently trading in the low $30-range.
New Britain, Conn.-based Stanley manufactures tools for professional, industrial and consumer use, and has built a business model that's been successful for more than a hundred years. A security solutions unit accounts for about 30% of revenue, but the key revenue driver here is tools: hammers, screwdrivers, sockets, saws, measuring, among other products.
The view from here argues that even though Stanley's F2009 revenue is likely to decline 7-10% to about $3.9 billion, Stanley has reduced manufacturing capacity and staff, and is well-positioned to increase market share in three key customer markets, particularly if major economies start to recover in Q3 / Q4 2009.
Stanley will also likely benefit from a frugality trend of the new era: high-end, sexy power tools were the rage when builders' and do-it-yourselfers' home improvement budgets were large: basic, manual tools are likely to displace power tools, given smaller budgets that are likely to be the norm during the economic recovery. The First Call F2009/F2010 EPS consensus estimates for SWK are $2.47/$2.87.
What should one not expect from Stanley? Hyper-growth or large annual losses.
Stock Analysis: Stanley Works is a moderate-risk stock not suitable for low-risk investors. Stanley is not a trade, it's an investment. Consider buying a 25% position in SWK now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your SWK position in the first half of 2009. Sell / Stop Loss if you were to buy shares in this company: $22.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
2-10-2009 @ 11:14PM
themig1 said...
Stanley is not based in Conn. Numerous years ago they incorporated offshore so they could avoid being taxed in the U.S. This is another example of a company that will go to any extreme to cut costs. I refuse to buy anything from Stanley. They are unAmerican for moving off shore for tax reasons. Scum in my opinion.
2-12-2009 @ 10:28AM
CTRes12 said...
themig1,
Actually if you look at the decision to incorporate offshore, this was likely to be voted down by shareholders, so it never happened. Stanley is still based in New Britain, CT.
3-24-2009 @ 12:29PM
My2Cents said...
Nice rebuttal, however, although Stanley still maintains it's Corporate HQ in CT...odd how CTRes12 is seems to be in CT?? (hummss) They still source their products overseas, as does most of the U.S. Hardware Market. (products meaning end completed assembled parts or for the most part parts resulting in a retail product) - and before you dispute that one, someone check out PIERS which is an import database and actually look up Stanley Works and its various Corporate incarnations and how much product importing they really do.
Also, you might be interested in the fact that Stanley Works is a "PRP", Potentially Responsible Party, in the ownership of a Superfund (okay they are among 10 companies named, but that doesn't mean they don't have some liability). Which sounds cool until you realize that a Superfund is defined as one of the worst Toxic Waste Sites in the Nation (check Scorecard.org). They are still going through litigation, but have 'prudently' put aside $30 million - because according to thier 10-k filing, they are basically only responsibile for a small portion (what?! - how do you own only a small portion of the Nation's toxic waste sites that contaminates drinking water for 170k people?)..this litigation is on-going so I doubt anyone from Stanley Works will discuss it. The Superfund Site is listed under Stanley Kessler in Montgomery, PA. The stocks might look good now, but when the litigation finishes and hits the media, I'm sure the deal and Company will look a little less 'sweet'.
This is also the same Company that back in the early 90's had to pay fines for Anti-Trust Activity and Price Fixing related to the sale of commercial hinges. Their fine was to donate money towards 'educational' institutions (which no proof, but probably translated into giving money to their own associated Industry Trade Organization, and that sounds like a win-win situation to me. They get to give money to their industry's trade organization and increase their company's pull with them? oh, the horror!! yes-complete assumption on my part) to promote "Business Ethics"..(apparently the lessons didn't stick and they traded anti-trust for toxic waste), maybe future Governmental fines will be put towards "Business Social Ethics" and they can buy a seat on a 'Going Green' Trade Organization and then run a marketing campaign about how 'green' and 'responsible' their company practices are???
Yes, you're right, I was bored today and the Internet is a great thing, it's amazing what you will find.