THE STANLEY WORKS $50 (New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Average) makes a wide variety of hand and power tools for professionals and consumers.

In the past four years, Stanley has shifted its focus away from cyclical consumer products to industrial products and building security systems, which have steadier revenue streams.

Consumer products now account for about 30% of its revenue and profit, down from 40% four years earlier. Focusing on industrial products also cuts Stanley’s reliance on big retail chains such as Home Depot.

Sales hovered around $2.6 billion from 2001 to 2003. But acquisitions pushed sales up to $3.0 billion in 2004, and to $3.3 billion in 2005. Earnings fell from $2.31 a share (total $201.7 million) in 2001 to $1.90 a share ($161.6 million) in 2003, before rising to $3.21 a share ($273.8 million) in 2005.

Stanley is still expanding its industrial tool business. It recently paid $490 million for Facom S.A., a French manufacturer of tools for the construction industry. It also acquired 67% of Besco Pneumatic, a Taiwanbased maker of tools that compress gasses, for $42 million.

Thanks to these new businesses, Stanley earned $0.90 a share (total $75.0 million) from continuing operations in the second quarter of 2006, up 16.9% from $0.77 a share ($65.3 million) a year earlier. Sales rose 25.2%, to $1.02 billion from $814.7 million.

Stanley feels that rising prices of steel, aluminum and zinc will add $22 million to its costs in the second half of 2006. But its planned price increases should offset about 70% of these extra costs. It also plans to launch several new products in the fourth quarter, which should spur sales at its consumer division.

The company spent $201.1 million on share buybacks in the first half of 2006. But it will probably use most of its cash flow in the next year to pay down its $821.0 million in long-term debt (0.6 times equity), instead of buying back shares.

The stock got as high as $55 in April, but fell to $42 in July on fears that rising interest rates would hurt new home construction and renovation, and cut Stanley’s sales growth.

It now trades at 14.2 times its likely 2006 earnings of $3.53 a share. The $1.20 dividend yields 2.4%.

Stanley Works is a buy.