The Weather Outside Is Frightful, But My Toys Are So Delightful

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Christmas is coming! What’s the one thing that all kids want for Christmas? TOYS! What can you do to make sure you capture the gains from Christmas sales for years to come? Buy toy companies! There are two obvious choices that I want to take a look at in Mattel (NASDAQ: MAT) and Hasbro (NASDAQ: HAS) then two smaller companies in JAKKS Pacific (NASDAQ: JAKK) and LeapFrog Enterprises (NYSE: LF).

TOY EXTRAVAGANZA

Mattel is truly a toy extravaganza. They have many brands that I played with as a child and that will continue to be the names that children ask for into the very distant future. Some of the brands that Mattel manufactures, markets, and sells include Barbie, Hot Wheels, Tyco R/C, WWE Wrestling, Toy Story, Fisher-Price Brands, Dora the Explorer, and many more.

Mattel is a twelve-billion-dollar worldwide brand that is experiencing sales growth of 7% and income growth over 10% in the last twelve months. Over the last decade management has brought EPS from $1.03 up to $2.18 in the last fiscal year. Debt has also increased during that time, but I feel that Mattel has the capabilities to handle it should the need arise.

Analysts like Mattel over the long term giving it a mean recommendation of 1.89 (1=Strong Buy, 5=Strong Sell), I also like this stock over the long term. I don’t feel that Barbie dolls will disappear off of the toy radar any time soon and neither will a majority of other Mattel brands.

If you’re in the investing game for yield then I think Mattel may also catch your fancy. The company offers a 3.36% yield to investors at the time of writing. That’s a nice, strong yield that will surely give your portfolio a boost!

What about the Older Kids?

Mattel may have the younger market sewn up, but as I’m sure you’re aware, children get older. Hasbro focuses on an older market, and they throw some young children brands in there for good measure. Brands in the Hasbro portfolio include Transformers, NERG, Parker Brothers, Marvel, Star Wars, and Milton Bradley.

The Hasbro brands add up to give Hasbro an almost five-billion market-cap. The company, like Mattel is experiencing a 7% annual sales growth but, unfortunately for Hasbro, the income growth is negative over the last twelve months. The management at this company has still seemingly performed a better job than those at Mattel by growing EPS from $0.43 in 2002 to $2.82 as of last fiscal year.

The debt at Hasbro troubles me a little. Long term debt is more than the equity in the company and could spell trouble in a downturn. Analysts probably aren’t too fond of the debt either and they have given Hasbro a mean recommendation of 2.88, firmly in the “Hold” zone.

Nothing Spectacular

If you want to invest your money in a company that doesn’t seem to have any real prospects, has been suffering falling revenues year after year, and doesn’t really have any big, well known and sought after toy brands then you should go after JAKKS Pacific.

JAKKS Pacific makes a variety of toys; some from brands like Disney, some based on DC characters, and then a random collection of other things that they can only hope will sell. The company has seen revenues falling year after year since 2008 and I don’t think they will ever make a comeback worthy of investment.

Analysts have a mean recommendation of 3.0, one analyst has it at a “Strong Sell” and I think that is where I will peg it. There are so many things you can do with your money that are better than this.

JAKKS does offer a 3.28% yield if you’re bonkers enough to keep your cash with them.

Back to the Interesting

LeapFrog is an interesting company, they make educational toys for children and that is something that many parents are choosing to look for.

Sales of LeapFrog based products are up 5.2% over the last twelve months and income growth is up a staggering 300%. The company is currently trading for less than yearly revenues which may present a buying opportunity for some people.

What I really like about LeapFrog is that it carries no long term debt; this is always a big bonus for me when I look at where I want to put my money. I also look for yield so it is unfortunate that LeapFrog does not pay a dividend.

LeapFrog is a well-known name which I think could be acquired by one of the major toy companies in the future. This for me is a good investment, much better than JAKKS. Analysts have the recommendation at a 2.0, the buy level.

Final Verdict

I like Mattel and LeapFrog as investments at this stage. There is nothing wrong with Hasbro either. I would definitely keep my distance from JAKKS though, there doesn’t seem to be any real opportunity there.

 


Ash1402 has no positions in the stocks mentioned above. The Motley Fool owns shares of Hasbro and Mattel. Motley Fool newsletter services recommend Hasbro, LeapFrog Enterprises, and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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