THE STANLEY WORKS $52 (New York symbol SWK, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 80.4 million; Market cap: $4.2 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.5%; WSSF Rating: Average) makes a wide variety of hand and power tools for consumer and industrial users. Top brands include Stanley, FatMax and Powerlock.

Stanley has agreed to buy rival toolmaker Black & Decker Corp. (New York symbol BDK) for $4.5 billion in stock. Assuming both companies’ shareholders approve, the deal should close in the first half of 2010. Stanley shareholders will own 50.5% of the combined company (to be called Stanley Black & Decker). Black & Decker investors will own the remaining 49.5%.

This looks like a good move for Stanley. Black & Decker specializes in power tools, so there’s little overlap with Stanley’s hand tools. Moreover, Black & Decker’s security products, which include door locks and keyless-entry systems, are a nice fit with Stanley’s building-security business.

Stanley feels that it can find $350 million in annual savings by the end of the third year following the merger. Most of these will come from combining manufacturing plants, distribution networks and purchasing systems. The savings would add $1.00 a share to Stanley’s annual earnings.

To put these figures in context, Stanley earned $61.8 million, or $0.77 a share, in the three months ended October 3, 2009. That’s down 19.8% from $77.1 million, or $0.97 a share, a year earlier. Sales fell 16.3%, to $935.5 million from $1.1 billion.

Stanley should earn $2.56 a share in 2009. The shares trade at 20.3 times that figure. The $1.32 dividend yields 2.5%.

The Stanley Works is a buy.