Stanley Works Stock Looks Poised to Build on Gains

There are stock plays and then there are those rare stocks that you might consider for your child's college fund. I like to call them "stocking-stuffer stocks." Stanley Works (SWK), the tool and hardware maker, is one.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% If you bought Stanley in February, you're up more than 60%. However, if you missed that entry point, don't worry, there's more upside ahead. Here's why:

Founded in 1843, New Britain, Conn.-based Stanley is sort of a microcosm of the industrial ascension of United States. Stanley is a low-profile, highly productive manufacturer of tools and hardware for consumer and industrial use: Hammers, screwdrivers, saws, pliers, wood planes and measuring tape, etc. The craftsmanship and durability of it products is renowned.

Combine the above with a Connecticut Yankee-like cautious business culture and what you get is a company that's able to ride out the toughest of times -- even the worst recession in more than 25 years. Consider this: At the depth of panic-driven selling frenzy on Wall Street in March, Stanley's shares fell hardly at all.

Further, Stanley has the right balance between domestic (57% of 2008 revenue) and international sales (43% of 2008 revenue). It also has a dependable distributor network and a knack for knowing when it's time to start a new product line or make an acquisition. Most recently, Stanley acquired power tool maker Black & Decker (BDK) for $4.5 billion, subject to shareholder and regulatory approvals.

The First Call earnings per share estimate is $2.53 for fiscal year 2009 and $3.02 for next year. That 2010 EPS estimate will likely prove to be low.

Technically, Stanley's stock chart is strong -- an uptrend, with only minor, constructive corrections to the key, 50-day moving average. It's a sign that institutional investors are taking advantage of the short-term dips to establish or add to positions. The stock has also cleared psychological resistance at $50, to trade around $53.

What should one not expect with Stanley? Mega-growth, imprudent entries into either news markets or new business lines.
Overall, Stanley is a moderate-risk stock. In short, if you're looking for a short-term 40% flip, Stanley is not for you. But if you're looking for a stock that rises incrementally, seemingly perpetually, Stanley is one to consider.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.