A Stalwart That Keeps On Growing

A legendary name that is overlooked keeps retirement investors happy.
Some of the world’s greatest investments are often sitting right under your nose. While rummaging through my garage the other day, I came across a hammer. I know what you’re thinking: I’m going to talk about Home Depot (NYSE:HD). Nope, I’m going one better. Home Depot has to shell out a lot of money to build and maintain these stores.
Instead, I’m going to talk about a company whose name requires Home Depot to stock its products. That name is Stanley Black & Decker (NYSE:SWK).  That sent me to the finance pages of the internet, as I believed this venerable company had to have been purchased by some conglomerate.  Nope.  It’s still on its own as you can see from its own stock ticker.
The company offers products and services across hand tools, power tools and accessories, construction tools of all kinds, industrial and automotive repair gear, engineered fastening systems, infrastructure solutions, mechanical security systems and even health care. Chances are you’ve got a Black & Decker something in your house somewhere.
This is exactly the kind of company that’s easy to overlook when thinking of investments. Yet it makes things that are essential to everyday life and that you can find on store shelves around the world.  It’s a Peter Lynch stalwart.
I expected Stanley Black & Decker to be in the stalwart category — an 8% to 10% earnings per share grower, with a solid balance sheet and a little dividend. Turns out I was right. Analysts see 11% earnings growth in 2014, and 14% next year, with an 9.55% annualized rate over the next five years.
While growing at a long term rate of 10% clip going forward, it has a 2.4% yield, and trades at 16.5x fiscal 2014 earnings.
The balance sheet looks good: $515 million in cash offset by $3.85 billion in debt, which is costing the company less than 5% annually in interest expense. Operating cash flow was $285 million over the trailing six months, which is about twice what Stanley Black & Decker needed to pay the dividend.
The stock feels a bit pricey right now, but not my much.  This is offset by the fact that it’s trading near 52-week highs.  In a bull market as we have right now, stocks near 52-week highs tend to keep going beyond.  I love this company and its legacy, it has a fine balance sheet, and pays a nice dividend.  Normally, I might say it’s too pricey, but the new highs indicate that the market loves it too.
This is a prime example of buying into the stock, but setting a 7% stop loss, so you limit losses in the event things suddenly spin the other way.
Now’s the time to keep an eye out for stocks in the cyclical sector. You want to be in on cyclicals at the start of the new economic cycle, but also be aware that unexpected headwinds could slow growth.

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