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Fortune Brands (FO) owns a diverse stable of consumer products ranging from wine and spirits to golf equipment, padlocks, and kitchen cabinets. These different business lines serve as complimentary engines of growth, enabling Fortune to deliver solid profits even when some areas of the economy are faltering.

Fortune Brands has a track record of cruising through past economic downturns, so even though the housing sector has slumped and consumer spending is a concern, this stock is not getting abandoned. At $78.59 currently, FO is down from a peak of $86.90 at the start of this year but still up 7% from a year ago, and it has doubled over the past five years. Its dividend payout has increased 56% over five years to $1.56 annualized.

Fortune runs three main business lines: home products, golf products, and wine and spirits. All together Fortune rang up annual sales of $8.26 billion in the past year. Home products account for over half of revenues, but the wine and spirts business has kicked in a shot of growth to the mix lately. Even when one business hits a rough patch, Fortune always seems to have the good fortune of its other businesses carrying the load. That's the beauty of diversity across so many industries.

Fortune is expected deliver double-digit EPS growth averaging 11% over the next five years. For a company with over $8 billion in sales, that is impressive growth. After a phenomenal 2006 in which earnings rose 33% on sales growth of 24%, the analyst consensus is for a slight downtick to $5.20/share in 2007 as the housing slump hits the home and hardware lines. That's why the stock is off its highs. EPS estimates bounce right back to $5.77 in 2008, though, and the modest nature of the stock's pullback shows how much respect investors have for the long-term reliability of the company.

Management is active with acquisitions and divestitures to sustain its growth objectives.! A little over a year ago, Fortune spun off its ACCO office products division as a separate company. It's also been very aggressive with wine and spirits acquisitions, adding over 20 well-known brands to its star-studded stable of brands.

Fortune's family of golf products includes balls, clubs, shoes, and gloves. Fortune dominates the golf ball market with its Titleist and Pinnacle brands. Other Fortune golf brands include Footjoy and Cobra. Sales from this group exceeded $1.3 billion annually. Operating income for the golf business is expected to grow in the low-to-mid single digits.

The home products business was a star performer during the lengthy housing boom, but even now as home sales slow a strong remodeling trend helps support sales. Fortune's product lines include faucets by Moen and cabinets by Aristokraft, Schrock, and Omega. Other brands in this division include Master Lock padlocks and Waterloo tool storage products. Fortune beefed up this division further with the acquisition of Therma-Tru two years ago. Therma-Tru is the leading US manufacturer of residential entry doors.

Last but not least, Fortune's distilled spirits and wine division should approach $3 billion in annual revenue this year. Brands include Jim Beam bourbon and Geyser Peak wines. Last year it bought certain spirit and wine brands of Allied Domecq includes Sauza, the fast-growing #2 tequila in the world, Maker's Mark bourbon, Courvoisier cognacs, Canadian Club whisky, Laphroaig single-malt Scotch, Clos du Bois and other super-premium Napa and Sonoma wine brands. Sales for this division soared 36% in the fourth quarter, and operating income jumped 63%. Margins are attractive in the wine and spirits business, so its focus on expanding this business means that Fortune is becoming more efficient at generating profits.

Despite downward guidance from Fortune on the 2007 outlook due to the housing slump, Wall Street analysts are more positive than negative on FO. Seven of 13 analysts rate it a Buy or Strong Buy, and only one has a Sell Rating on the stock. FO shares trade at a relatively conservative 13.6 times forward earnings estimates. Fortune's Price/Sales Ratio, at 1.45 is similarly unremarkable--toward the conservative end of the investment spectrum though not quite a value investor's dream. Fortune's annual dividend of $1.56 gives it a yield of 1.90%, adding to the list of reasons investors might find this stock of interest.

Fortune Brands won't land on most stock screening lists for extreme growth or value. It is simply a well-managed collection of market-leading consumer brands, and the diverse nature of its business lines lends a stabilizing quality to its growth trajectory that is unique and attractive. It's not firing on all cylinders with the housing sector in a slump, but times like these are when investors might pick up the prized profit machines at a modest discount.

FO 1-yr chart
FO

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Source: The Power of Diversity - Fortune Brands' Stabilizing Force