Stanley Black & Decker (SWK) Stock Could Reach $125
NEW YORK (TheStreet) -- One way of finding new investment ideas is to first find what is working and then look for related, or "knock-on" plays. For example, Home Depot (HD) is a Dow Industrials component that has been in a strong uptrend. From HD, we can look at the chart of Stanley Black & Decker (SWK) - Get Report .
In this chart of SWK, above, we first want to look at the trend, which is up with prices above the rising 50-day and 200-day moving averages. SWK gapped up in the latter part of October over the September highs. There is a small double bottom in price in August and September, with a bullish divergence with higher lows from the momentum study. The only part of this chart that is not yet "in gear" is the On-Balance-Volume (OBV) line.
In this longer view of SWK, see chart above, we can see a strong uptrend, with a rising 40-week moving average. The OBV line was rising for most of the rally and only recently turned flat. The Moving Average Convergence Divergence (MACD) oscillator just gave a bullish crossover above the zero line. The overall picture - short term and long term -- suggests that SWK could reach $125 on its next upside leg.
TheStreet Ratings team rates STANLEY BLACK & DECKER INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
We rate STANLEY BLACK & DECKER INC (SWK) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company shows weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- STANLEY BLACK & DECKER INC reported flat earnings per share in the most recent quarter. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, STANLEY BLACK & DECKER INC increased its bottom line by earning $5.37 versus $3.28 in the prior year. This year, the market expects an improvement in earnings ($5.91 versus $5.37).
- The debt-to-equity ratio is somewhat low, currently at 0.76, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that SWK's debt-to-equity ratio is low, the quick ratio, which is currently 0.58, displays a potential problem in covering short-term cash needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Machinery industry and the overall market on the basis of return on equity, STANLEY BLACK & DECKER INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- 39.97% is the gross profit margin for STANLEY BLACK & DECKER INC which we consider to be strong. Regardless of SWK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SWK's net profit margin of 8.08% compares favorably to the industry average.
- You can view the full analysis from the report here: SWK
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.