A Christmas Story

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

This year, A Christmas Story will exceed 300 showings on the Turner family of networks since TNT began airing ’24 Hours of A Christmas Story’ in 1997.  Even though seeing Ralphie get his Red Ryder BB gun can be entertaining, even after the 10th time, I think investing in Christmas Day can be even better than that.  Here are some investing ideas to consider as your Christmas story approaches this year.

Money Grows on Trees

When we think about Christmas as far as decorations, trees are king.  Sure there are the lights and other indoor/outdoor decorations, but the market for these are too dispersed to really narrow it down to a single company or stock.  Lights for the most part are mostly made in countries outside the US, like China, or are under private labels.  However, trees can be narrowed down to a few major growers.

In my opinion, Weyerhaeuser Company (NYSE: WY) is the way to go for profiting off not only Christmas trees, but all trees, as they are a large multi-billion dollar in revenue per year forest products company.  Founded in 1900, Weyerhaeuser has a diverse portfolio of timberlands, wood products, cellulose fiber products (paper), and real estate.  They manage over 20 million acres of forests, which it leases to various entities.  Today they are taxed as a real estate investment trust (REIT).

For decades, Weyerhaeuser has been using its decades of forest seedling expertise to help Christmas tree growers across the United States make a faster, more successful start to their tree farms.  Despite the growing popularity of artificial trees, according to the sales figures from the National Christmas Tree Association, real tree sales are far from dying.  In fact, looking at tree sales for the past 5 years, the only clear indicator is that artificial trees sales are dropping.  There are a wide range of reasons that include PVC dangers and other chemicals in older artificial trees possibly giving new ones a bad name.  Ockham’s razor suggests that sales are dropping simply because there is no reason for people to buy a new artificial tree if they already have one.

Year

Real Trees (trees in millions)

Artificial Trees (trees in millions)

2007

31.3

17.4

2008

28.2

11.7

2009

28.2

11.7

2010

27.0

8.2

2011

30.8

9.5

In addition to Weyerhaeuser capturing a chunk of the estimated $984 million market for real trees this season, they have a lot of other positives going for them.  Net profit margins have increased from 5.13% to 6.6% year-over-year.  Net sales and revenues increased $203 million, or 13%, for the third quarter and $458 million, or 10%, for the year-to-date, primarily due to higher sales volumes in the wood products, real estate, and timberland segments.  People are buying homes and they are building them with wood. 

The stock has gone up over 48% this year and over 100% in total returns the past decade.  As part of the company's conversion to be taxed as a REIT in 2009, they issued a special dividend of $26.47 per share in July of 2010.  Talk about early Christmas presents!  Some share price charts not factoring in dividends may mislead you into thinking the stock actually declined nearly 50% the past decade.  This is definitely not the case. 

WY Total Return Price data by YCharts

Gifts Everywhere

If Weyerhaeuser is the king of trees, then Mattel (NASDAQ: MAT) is the king of toys.  Adults might not give each other Barbie and other Mattel toys in favor of cash or gift certificates these days, but Christmas is about the children.  Mattel meets children's gift needs by selling a broad variety of toy products that are grouped into three major brand categories: Mattel Girls & Boys Brands, Fisher-Price Brands, and American Girl Brands.  Within these categories are some popular names that include Hot Wheels, Matchbox, Tyco, Mickey Mouse, Power Wheels, and of course Barbie.

Even though Mattel is the world’s largest toy company based on revenue, they are still getting larger.  Net sales for the third quarter were $2.08 billion, or 4% higher than the $2.0 billion in 2011.  Cost of sales dropped as a percentage of net sales from 52.2% to 46.3%.  As a result, net profits swung favorably from 12.26% to 17.61%.  Gross profit also increased to 53.7% from 47.8%.

So far this year, Mattel is up over 33% and approaching their 1998 share price peak of over $40 per share.  In my opinion shares can go much higher over the next decade as they say they will continue to invest $180-200 million annually to maintain and grow the business as well as make strategic acquisitions.  I believe the recession did little to stop their momentum because of the nature of the business.  Toys are relatively cheap in a world of high-priced video games, computers, and other high tech electronics.  The margins allow Mattel to make a significant amount on each customer purchase even if their product prices are far less than a $300-400 gaming system.  This is somewhat opposite to a tech company like Sony, which has a history of producing Playstation gaming systems at a significant loss.

MAT Total Return Price data by YCharts

What Is Open on Christmas Day?

A tradition that's not as straight forward as buying Christmas trees or buying presents to put under the trees is going to the movies.  If you think about it, most places are closed on Christmas Day and one can only watch A Christmas Story so many times before going insane.  However, movie theaters (in addition to Chinese restaurants) are very much open, with many anticipated blockbusters opening within a week or two of Christmas Day, if not on the day itself.  This year is no different, with movies like The Hobbit, Monsters Inc 3D, and Zero Dark Thirty getting national attention.  Cinemark Holdings (NYSE: CNK) is my pick to profit off of motion picture sales this season.

Cinemark is a leading domestic and international motion picture exhibitor, operating 461 theaters with 5,207 screens in 39 U.S. states, Brazil, Mexico, Argentina, and 10 other Latin American countries as of Sept. 30, 2012.  They recently expanded further after acquiring all the assets of Rave theaters, which resulted in another 32 theaters located in 12 states, or 483 additional screens.  More important than the quantity of the acquisition is the quality.  All 483 screens are fully digital and 37% of the screens are 3D capable, which is important for re-releases like Monsters Inc 3D.  The assets to be acquired also include 7 IMAX screens and 9 premium large format auditoriums, which are good for blockbusters like the new The Hobbit trilogy that is about to begin, and should generate significant cash for theater owners.

Year-to-date, Cinemark has gone up over 43% in share price and they have a decent 3.1% dividend.  Using the latest earnings report, revenues increased 4.7% for the June 2012 quarter versus last year’s results.  While the U.S. had a slight decrease in admissions revenue to $4.1 million, international revenue soared to $16.3 million.  Attendance at international venues was up 20.7%.  This could be a result of international economies catching up to the U.S., or the possibility that the options to view movies are fewer outside this country.  Nevertheless, the international exposure makes Cinemark a motion picture company to consider in the future as they expand their operations.

CNK Total Return Price data by YCharts

Gift that Keeps on Giving

Browsing across different charts of ‘top gifts that keep on giving’ for Christmas gift ideas, I see things like cooking classes, perennial flowers, and memberships to various places.  While these sound good, I think dividends sound better.  In a time where savings account interest rates and fixed income accounts like CD’s are at some of the most pathetic rates in history, dividends of even 2-3% can exponentially better.  It should then be no surprise then that all 3 stocks I suggested this Christmas are also dividend stocks: Weyerhaeuser pays 2.45%, Mattel pays 3.33%, and Cinemark pays 3.16%. 


mikecart1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Mattel and Weyerhaeuser Company. Motley Fool newsletter services recommend 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure