Land of Forgotten Toy Stocks: Buy Transformers, Sell Barbie
There's no time to play around in the toy industry these days: JAKKS Pacific (JAKK) is getting buyout overtures, Toys "R" Us is angling to go public, and the telltale holiday shopping season is just around the corner.
In the very real world of pretend and playthings, it all boils down to two warring giants: Hasbro (HAS) and Mattel (MAT).
What's in Your Toy Box?
Mattel has Barbie and Hot Wheels. Hasbro has Mr. Potato Head and Monopoly.
Hasbro has what promises to be a hot toy this holiday season. Let's Rock Elmo -- the latest installment in Hasbro's line of interactive Elmo toys -- stars the Sesame Street icon singing and playing musical instruments alongside toy owners. The $70 price tag is going to be a deal breaker for some, but the toy does raise the bar on the historically successful franchise. It doesn't hurt that it was just named one of the holiday's hottest toys by retailing giant Toys "R" Us.
However, this is about more than just taking inventory of what your kids -- or grandkids -- have on their wish list. It's about playthings that have a rich life outside of the toy box.
Lights! Camera! Monetization!
Hasbro has been the smarter company in recent years because it has been able to cash in on the popularity of its proprietary properties. If you don't believe me, check your pockets for old multiplex ticket stubs.
Transformers and G.I. Joe have been iconic brands at Hasbro for ages, but both toy lines have become monster cinematic franchises for the company. Transformers, in particular, has been huge -- cranking out three theatrical blockbusters.
This is a bigger deal than you think.
It's not just about getting a sweet cut of the box office, DVD, and digital distribution action. Sales of Transformer toys have skyrocketed with every release. The cars that morph into battling robots may have taken a generation off, but they're back with a vengeance for Hasbro.
Toys in the Attic
Mattel isn't necessarily a slouch. It actually blew away Wall Street's profit targets in its most recent quarter, unlike Hasbro, which has come up short in its two previous quarterly outings. Both companies also reward investors with similar 3.4% yields.
Although Mattel had its stumbles a few holiday seasons ago, particularly as one of the companies involved in massive toy recalls over toxic Chinese paint, parents have largely forgiven -- or forgotten -- about that. When Elmo springs up on a holiday wish list, it's hard to hold a grudge.
However, before its two most recent quarterly misses, Hasbro was a beast. The country's second-largest toy maker was routinely beating Wall Street expectations. Given its long-term record of financial performance and its theatrical successes, I'll have to give this one to Hasbro -- by an Elmo nose.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Hasbro and Mattel.