Toys might be all fun and games, but the ongoing battle between their rival makers — Hasbro (NASDAQ:HAS) and Mattel (NASDAQ:MAT) — is anything but that … especially with the highly anticipated holiday season right around the bend.

The two toy titans cover a wide range of well-know brands — including My Little Pony, Monopoly, Transformers, Hot Wheels, Barbie and American Girl — and will be battling for the affection of children (and the parents who actually buy the toys) in the coming months.

So, heading into the seasonal spree, which toy-maker stock should be atop your shopping list?

Striking Similarities

At first blush, the two toy-makers have similarities past how they make their money: namely, across a few stock metrics.

To start, the rivals are similarly valued — each trades near trailing price-to-earnings ratios of 15, as well as forward ratios of 13. Heck, even their actual stock prices are similar, both trading in the high $30s. Both also boast attractive dividend yields north of 3% — Hasbro has the edge at 3.7%, but Mattel’s 3.35% isn’t far behind.

From a broader financial standpoint, both companies struggled with slipping sales in the first half of the year and have been hurt by the strong U.S. dollar of late. Despite this, each have enjoyed market-beating returns, though MAT’s 35% year-to-date gains certainly beat out HAS’s 24%.

A Big Difference

Poring into the companies’ recently released third-quarter numbers begins to show a little bit of separation.

Mattel reported Q3 profits of $365.9 million, or $1.04 per share — a 22% jump from the year-ago period, and markedly better than the 99 cents per share that analysts expected. Revenues also grew a solid 4% to $2.08 billion even after factoring in a negative currency exchange.

Mattel rode the success of its American Girl dolls — which I’m surprised to say not only still exist (I grew up playing with them), but also saw sales increase 16% year-over-year. The Fisher-Price division was another strong performer, increasing 6% to help offset struggles for Barbie and Cars 2 toys.

Hasbro, on the other hand, was unable to break its recent downward trend. HAS reported a third-quarter profit of $164.9 million ($1.24 per share), down 3.5% from the year-ago period. Revenues also declined again — this time by 2.2% to $1.35 billion, which was $3 million less than expected.

Hasbro relies more heavily on games and puzzles than Mattel — and that has been bringing it down. Those sales account for a quarter of its revenue and fell more than 8% in the first half of the year. More recently, Hasbro also has struggled internationally more than its competitor.

For the full-year, analysts now expect Mattel to see an earnings increase of 16% year-over-year — more than double the 6% improvement expected for its smaller rival.

A Long Road

Falling sales for both companies early in 2012 are evidence of the reality that kids now spend more time playing on gadgets like Apple‘s (NASDAQ:AAPL) iPad tablet than with board games and action figures.

Hasbro has been hard at work trying to turn this trend in its favor. It recently debuted a revamped Furby toy that is compatible with devices using Apple iOS 6 and Google (NASDAQ:GOOG) Android operating systems. The Furby has the advantage of built-in brand recognition and fans paired with appeal to tech-obsessed youths.

Big-box retailers Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) already have put the new Furby on their respective lists of hot toys — a good early sign Hasbro. Plus, it is just the first of more than 20 products Hasbro plans to integrate with newer technologies.

Hasbro is using the same approach in hopes of improving its struggling games business, too. The company has updated its Twister, Monopoly and Laser Tag games with iPad versions, and it also made an exclusive partnership with Zynga (NASDAQ:ZNGA), giving it access to popular online names like Angry Birds and FarmVille. This already has paid off, as Hasbro’s games business was flat for Q3, breaking seven consecutive quarters of declines.

Mattel, of course, hasn’t ignored this trend either. The company recently launched Apptivity, which allows kids to interact with games on Apple’s iPad using screen-safe toys from its Hot Wheels, Fruit Ninja, Cut the Rope, The Dark Knight Rises and WWE lines.

Long-term, success will come to whichever company can better sync its toys with technology.

The Bottom Line

Both companies have been around for some time, so changing tastes and technologies are far from a new problem. Adapting to a tech-loving generation of kids won’t be easy, but it shouldn’t be a back-breaker for MAT or HAS, either.

A couple of the headwinds these companies face — the slowdown in Europe, a strong U.S. dollar — aren’t exclusive to the toy industry, either. They’re headaches faced across many sectors, and similarly, they’re headaches that should subside with time.

Toss in expected increases in consumer spending and optimistic holiday sales forecasts, and both companies seem to be in a pretty good position. While Hasbro might get the nod for its slightly better payout and its efforts in technology, I wouldn’t hesitate to put either company on my wishlist.

As of writing this, Alyssa Oursler did not own a position in any of the aforementioned securities.