Ask the Rational Investor: Build Your Portfolio with Stanley Black and Decker!
Growing up in Northeast Ohio, I’ve always wondered what makes the New England Patriots a such great team, year after year. Now, perhaps I am bitter because of our Brownies' winning history (or lack thereof), but it seems like even when the Patriots are presented with obstacles they rise to the challenge and come out ahead!
As professional investment managers, we build portfolios with individual stocks and bonds and are often asked, “what makes a great stock?”
Too often, we speak to investors that speculate on penny stocks or high-growth stocks, only to be let down after a period of time. Speculators are better served at Northfield Park’s Hard Rock Rocksino, than in the stock market.
In contrast, we spend most of our time searching for companies that are similar to the Patriots in their industries—that is, are usually number one or two in their industry—consistently outperform peers with their financial results, and have excellent management teams.
One company that fits this criterion is Stanley Black and Decker, which has paid consecutive dividends for 142 years, generated a 542% total shareholder return (2000-2018), and has consistently grown their earnings-per-share about 10% over the last five years.
70% of Stanley Black and Decker’s sales are from Tools, where they have top market share globally, and includes well-known brands such as DeWalt, Bostitch, MAC Tools, Craftsman, and Black+Decker. The rest of their revenue is derived from Industrial Tools (16%) and Security (14%).
Through 2022, the company expects to grow about 9 to 12% a year and looks to grow through acquisitions in the Lawn and Garden segment.
In addition to the strong organic and inorganic growth opportunities, we also like Stanley’s policy to allocate about 50% of free-cash-flow to shareholders each year through dividends and share repurchases.
When the world’s economy is accelerating, cyclical companies similar to Stanley tend to do very well. However, as the economy slows, their stock prices can also tend to change much more quickly. While long-term trends at Stanley Black and Decker seem very favorable, investors should carefully weigh the investment in the context of their overall portfolio and goals.
Sources: Company Presentations, Annual Reports
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.