1 Toy Company That's Fisher-Priced Right for Growth

Who doesn't want an opportunity to invest in the resurgence of consumer confidence, the expansion of global branding, and the continued growth of the world population? With the population spiking exponentially, three of the biggest toy producers in America are betting parents will do what they've always done: Buy an endless supply of toys. But only one of these three has the brand and corporate strength needed to succeed.

The new frog on the block
While it's unfair to call LeapFrog (NYS: LF) a media darling, it has its share of loyal fans. Oracle founder and CEO Larry Ellison owns a major piece through his investment firm Knowledge Universe Holdings. When the company went public in 2002, it had the best IPO of the year, with the stock rising 93%.

It produces a strong, new product, as well. Its kid-friendly tablet, the LeapPad, helped push revenue up 5% in 2011. And while sales flatlined in the U.S., they expanded internationally, with LeapFrog posting 28% revenue gains overseas.

LeapFrog looks poised to become a Prince Charming, too. At the end of 2011, it signed on with Hasbro (NAS: HAS) , Nickelodeon, and Kidz Bop. If the tablets continue to sell well, these partnerships will pay off for the company and its investors.

Even with all this success, the stock doesn't suit my tastes. The LeapPad may be a great growth product, but the tablet market is young and already has some vicious players. Additionally, there's nothing in LeapFrog's products that screams "market domination" to me. The lucrative kid segment is too fickle when it comes to toys for the brand to have much value.

Finally, remember the Larry Ellison note a second ago? What I didn't mention -- for sheer dramatic effect -- is that Ellison is purging LeapFrog shares. He's already dumped over 1.2 million shares in 2012, and there's no reason to think the sell-off is finished.

A completely legal Monopoly
Perhaps a more traditional toy company like Hasbro is a better long-term bet. In 2011 Mattel (NYS: MAT) ended its partnership with Sesame Street, and Hasbro jumped on it like a bully on a bagged lunch. As a result, Hasbro's preschool revenue increased 15% in the fourth quarter.

While the Sesame Street opportunity paid off, Hasbro's fourth quarter wasn't all "Free Parking" and "Get Out of Jail Free." Domestic sales fell 2%, forcing layoffs at the company's Rhode Island headquarters. With a few new lines and a restructured workforce, it looks like 2012 will be a rebuilding year. Hopefully Elmo and the gang will soften any financial blow, but I'm not counting on it.

A toy chest full of opportunity
I'm looking at Mattel for my long-term toy investment. Full disclosure: I'm also looking at collectible He-Man figures and Pogs.

Mattel had modest sales growth last year, rising 1% to $6.84 billion. This was despite a poor holiday showing, with domestic fourth-quarter sales falling 2%. The decline was largely due to the expiration of Mattel's partnership with Sesame Street.

The loss of Tickle Me Elmo and friends drove down Fisher-Price sales in 2011, although core Fisher-Price revenue increased 2% worldwide. The American Girl segment also increased, rising 5% due to the opening of two American Girl stores. But the biggest winner was the Girls & Boys brand segment, which includes Barbie and Monster High, and where sales increased 13% to $4.15 billion.

Internationally, 2011 was a good year, with sales growing 11.6%. This was driven by the expansion of the Monster High line of toys, which caught on in Europe. The company plans to maintain its focus on international growth in 2012, relying on new licenses and expanding existing lines, such as Thomas the Tank Engine. If Mattel can replicate the success it had in Latin America, where sales grew 14% in 2011, then 2012 will be a great year for international growth.

Imagine a world full of Monster High dolls -- wow.
Mattel has a huge untapped international market for its products and franchises. It has a better business in place than Hasbro, and unlike LeapFrog, Mattel has the resources to forge ahead internationally. I think Mattel will have a successful next two years, and I've made a CAPScall to that effect.

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At the time thisarticle was published Fool contributor Andrew Marder doesn't owns any of the stocks mentioned in this article. He does, however, own some Pogs and plans to increase his position in the near future. Motley Fool newsletter services have recommended buying shares of Mattel and Hasbro. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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