What to Buy Before the Holidays
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Early layaway policies at Wal-Mart, K-Mart and Toys R Us are great because it’s like a company preannouncing. Investors are getting the all clear on certain toy stocks. So far this pre-Black Friday and holiday shopping season we already know that Monster High dolls (Mattel), the refurbished Furby (Hasbro), Leap Pad 2 Explorer manufactured by Leapfrog Enterprises (NYSE: LF), and the Disney Doc McStuffins toys are big hits. Toys R Us even has a web page where parents can check the hot toy list and reserve them. It's as though Toys R Us has been kind enough to give us a stock shopping list. Some of the hot toys on the list are from private companies like the Lalaloopsy dolls made by MGA Entertainment and Legos from a privately held Danish company but most are from some big publicly traded stocks.
Just like the candy companies experience a make or break point at Halloween, the next few months are crucial as Mattel CEO Bryan Stockton referred to it in their earnings call as, "the all-important holiday season." Mattel (NASDAQ: MAT) reported Q3 earnings on October 16 and beat analyst estimates with cost savings and price hikes as well as a 16% rise in sales in the American Girl line and its surprise hit in Monster High dolls which according to early layaway numbers are already getting scarce. Mattel has a 16.19 P/E and a 3.50% yield with a payout ratio of 49%. It's not a surprise that Mattel had good numbers as it has most of the most popular toy lines including American Girl, Barbie, Hot Wheels, and Fisher-Price. Net income rose to $1.04 a share up from the year ago $0.86 which was more than analysts expected of $0.99. Barbies are still on the hot toy list as are American Girl and Mattel's Hot Wheels R/C Remote Terrain Twister. The Hot Wheels Dune Racer is making the lists at KMart and Wal-Mart. Mattel has a large contingent of adult toy collectors who are already reserving Holiday Brunette Barbie only available at KMart. Mattel even offers a website devoted to toy collectors.
Hasbro (NASDAQ: HAS) has updated the Furby to be even more interactive and emotive. At $60 the new Furby is pricier than its late 1990's predecessor. The question is how big the margins can be on this toy with its higher tech LEDs, its iPad like accelerometer, and various graphics that reveal its "feelings." One thing parents may not appreciate is that the Furby is a 24/7 toy, meaning that it won't shut up or shut down. It just goes to sleep. Goldman Sachs downgraded Hasbro on October 15 based on its belief in a general industry slowdown and in particular, Hasbro's exposure to board games like Monopoly, puzzles, and toys for boys. Hasbro is surely hoping the Furby can shake up earnings as it also makes Monopoly and Nerf and My Little Pony. Since the Goldman call Hasbro has moved up in sympathy with the good Mattel earnings. Hasbro is interesting with a better 3.80% yield and lower 14.79 P/E than Mattel. It reports October 22.
Leapfrog Enterprises specializes in learning toys for children up to 5th grade and considers itself the leader in educational entertainment for kids. It's up 6.32% on October 17 along with the rest of the toy names after Goldman's comments on the 15th were refuted by the Mattel numbers and the early layaway numbers releases. The LeapPad2 is also on the KMart and Wal-Mart lists of popular layaway items. Leapfrog is worrisome because it's so focused on learning toys and has a strong private competitor in Vtech. It's P/E is in line with the toy industry average at 15.76 and it's still off some 30% from its 52-week high of $12.28. Their learning toys win awards year after year from the Oppenheim Toy Portfolio which lists the best toys and learning entertainment devices, all kid tested! Leapfrog has won more than 65 of these coveted awards. This year the Leapfrog GS won the Best Toy of 2012 award. Leapfrog reports on November 1.
Interestingly, Apple (NASDAQ: AAPL) may be a beneficiary of a Furby frenzy as the toy can be synched to an iPhone or iPad app to be even more interactive. That however, wouldn't move the needle at all for this tech and retail giant. But early layaway numbers from Wal-Mart are showing iPads to be a popular layaway item and that is good news. With the iPad mini upon us Apple would have been competing with Toys R' Us own Tabeo, a child-centric tablet, on its hot toy list but since Toys R Us stopped taking reservations for its Tabeo, this is even better news for Leapfrog and Apple. If you've read any of my other Apple posts, you know I have been bullish on Apple and if you can get it below $600 after earnings on October 18, run, do not walk to place your trade. Skip on the way back. Same with Disney, its toys won't probably move the needle this season (although the Doc McStuffins character toys are very popular) simply because it is such a media, content and leisure giant.
What to buy? What to buy?
Isn't that always the parents' and investors' dilemma. Toys R Us just gave you a list and so have K Mart and Wal-Mart. Mattel gave you another heads up at its earnings call. Now it's time to go shopping. If you want yield go with Mattel or Hasbro. If you want a great all around holiday name, buy Apple or Disney. And if you think that Leapfrog has some more upside you could go with that although I would consider it the most speculative, but aspirational parents are loving their learning games.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Hasbro, and Mattel. Motley Fool newsletter services recommend Apple, 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.