2 "Leisure" Stocks To Complement One Another

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

With the economy in an upswing, I encourage investors to aggressively buy share in leisure categories ranging from casinos to toys to cruises and resorts. Below, I review one relatively risky stock and a safer pick to complement one another.

Las Vegas Sands (NYSE: LVS)

LVS is looking like it will edge out DuPont as a more valuable company on the S&P 500 with a valuation of around $44 billion. Lazard recently increased the price target on the firm from around $53 to $59, which is at a 10% premium to the current price. Much of the 36% rise in the stock price has to do with the market becoming less concerned with decelerating growth in Macau, which LVS is rapidly expanding into through the addition of thousands of hotel rooms and a new casino. 

I am particularly attracted to LVS because of its strong corporate governance. The company's founder, Sheldon Adelson, is also the largest shareholder, and he has a vested interested in creating value. It should therefore not be surprising that the firm is very shareholder friendly--going so far as to make a one time advance dividend distribution to shareholders to avoid taxes. This reduces risk at the same time that the growth strategy is still very aggressive. For all of the fear mongering from the Macau bears, the region's growth is still strong and delivering double-digit gains.

My one concern with the firm concerns its multiples. At a respective 28.4x and 16.7x past and forward earnings, the market may be tempted to get invested in cheaper securities that are likely to outperform in an improving economy. Analysts forecast 15.7% annual EPS growth over the next 5 years, which is 410 bps higher than what was achieved in the past 5 years. Accordingly, there is plenty of downside potential from here.

Mattel (NASDAQ: MAT)

Mattel is a stable grower for the defensive investment. MKM Partners recently upgraded the stock from "neutral" to "buy", and Needham pushed up the price target. At 18.7x past earnings, the stock may seem expensive to some; but I believe this is outweighed by growth acceleration and product resiliency.

Mattel’s brands seem immune to the reported decline in domestic toy sales. In the 4th quarter of 2012, for example, American Girl’s sales went up by a terrific 16%--momentum that offset the 4% loss in Barbie. Mattel is now gaining licensing rights to top leading companies like Disney, which is getting active on the studio business side following the acquisition of Lucasfilm.

Management also continues to be very shareholder friendly. To kick off this month, Mattel boosted the dividend by 16%. Despite how strong returns have been, I believe they could have been stronger had it not been for disappointing performance from Hasbro.

Conclusion & 1 More Stock To Consider

LVS and Mattel are both expensive stocks--they trade above the multiple on the S&P 500 as well as their peer group averages. However, they are both great companies. They are great for different reasons--LVS offers strong growth potential while Mattel offers compelling stability.

To gain greater upside, I would encourage buying LeapFrog Enterprises (NYSE: LF). This maker of educational electronic games is selling at a bargain price of 6.7x past earnings. It also generating tremendous free cash flow at a yield of 7.4%. It carries no long-term debt and is, in fact, cash-rich at a current ratio of 3.9x. Analysts have pegged the price target at $13.33, which is at more than a 55% premium to the current price. I therefore believe that there could be a takeover offer for the company. With such a discount already, a competitor could easily buy the company out and generate synergies--all in the absence of a highly leveraged balance sheet.

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