Who Wants to Play?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I have a daughter who was born just over a year ago. Every night when she goes to bed, though, you'd think I had a preschool in my house because there are toys absolutely everywhere that need to be picked up. Balls, board books, blocks... we've got toys that light up, toys that sing, and an annoying little zoo that launches into a 5-minute song-and-dance routine if you so much as breathe near it. Ah, the joys of parenthood.
As a father, I've come to realize two things about children's toys: they are much more expensive than when I was a child (said from a nostalgic point of view with no basis in reality whatsoever, since it's not like I actually paid attention to the price of toys when I was young), and they are much more complex than when I was a child. Not that we didn't have complex toys back then, of course; after all, I had the G.I. Joe aircraft carrier, the USS Flagg.
Growing up, the majority of my toy selections came either from Mattel Inc. (NASDAQ: MAT) or Hasbro Inc. (NASDAQ: HAS), with the occasional LEGO bricks thrown in. Back then they seemed to have it all: Mattel offered up Hot Wheels and He-Man while Hasbro gave me Transformers and G.I. Joe. Looking back on how many toys I owned by those two companies and thinking of all of the Barbie dolls and other toys I might be buying in the future, it made me wonder whether it would be worthwhile to buy more than just toys from these companies.
I started by looking at Mattel. The company's stock seems to be doing well, continuing a trend that started in the spring of 2009. This makes sense given that the company was just coming out of a lead paint scandal then and soon after inked a lucrative deal to produce toys based on World Wrestling Entertainment characters. Digging a bit deeper, though, I realized that this growth trend is more than just getting back to business after a scandal... Mattel is currently enjoying its highest share prices since 1998 and has been making some smart licensing decisions to get toys on the market as tie-ins to highly anticipated films. Expanding popular toy lines such as the Monster High dolls and the exclusive Masters of the Universe Classics line help to ensure non-licensed income as well. Mattel's Q2 earnings jumped 33% over the previous quarter, and given the popularity of its products and product releases planned through Christmas and into next year it's unlikely that earnings are going to drop.
Shifting my attention to Hasbro I found that it's not seeing quite the record growth that Mattel is currently enjoying. This doesn't mean that the company is doing poorly, of course; prices are currently a few dollars higher than Mattel, but they aren't much higher than they were at this point last year. It's worth keeping in mind that Hasbro's prices were falling last August and dipped all the way down to under $32 per share by Christmas, so the company's current $38 share price represents recovery from what was a rough second half of the year in 2011. Hasbro hit a peak at nearly $50 a share in December 2010 and has been struggling to regain that lofty position ever since. Growth will likely continue for the second half of this year since they have a strong release lineup planned as well, including the reintroduction of the Furby as what they hope will be a must-have Christmas toy like the original was back in 1998.
So if you could only go with one of these companies, which would I recommend? LeapFrog Enterprises Inc. (NYSE: LF) Yeah, I know... bait and switch. But considering that LeapFrog has more than doubled its stock price since the beginning of the year, is currently enjoying the highest share prices in 5 years, produced one of the must-have toys for 2011 (and introduced a second generation of that toy, the LeapPad2, just this past week), and is currently trading for just over $11 there's a lot of value to be had in this little tadpole. LeapFrog produces "edutainment" electronics, sophisticated plush toys and educational DVD content that is surprisingly well produced.
To sum it up, if you're looking to add a toy company to your portfolio before the Christmas rush then I'd recommend putting your money in LeapFrog. If you're looking to add two, I'd go Mattel over Hasbro just because Mattel's stock performance has been more consistent in recent years than Hasbro's has though either has the potential to be a strong long-term investment. And if you'll excuse me, I have some toys to pick up and put away in the living room.
Croaxleigh 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.If you have questions about this post or the Fool’s blog network, click here for information.