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.
Past performance is not indicative of future results. The material above has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed, Beese Fulmer Private Wealth Management ("Beese Fulmer") makes no representation or warranty as to the accuracy or completeness of the information, which should not be used as the basis of any investment decision. Information contained on third-party websites that Beese Fulmer may link to is not reviewed in their entirety for accuracy and Beese Fulmer assumes no liability for the information contained on these websites. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Beese Fulmer. For more information about Beese Fulmer, including our Form ADV brochures, please visit https://adviserinfo.sec.gov and search for our firm name.
