The real winner this holiday season? Santa. Or at least, the various toy manufacturers filling his workshop and sleigh this Christmas.
The key for the toy stocks is that it doesn’t matter what retailer you go to — they still get a piece of the action of holiday spending. And it looks like we’ll be spending a bit more this holiday season on their products.
According to market research shop NPD Group, this Christmas is going to surprisingly bullish for toy sales. U.S. sales of toys is scheduled to hit just north of $20 billion. That’s about a 6.2% increase over 2014’s holiday season toy spending. Already the first half of the year has seen some pretty big bumps — with games and puzzle spending surging 13%, and action figures and dolls leaping 8% each.
And the various toy stocks are going to benefit from the surge in spades.
But not every one of the toy stocks are going to benefit as well as others. Kids — and their parents, who hold the wallets — are notoriously fickle. Only the toys stocks with hottest brands and licenses are going to succeed at garnering the bulk of that holiday spending. For investors, betting on these toy stocks could prove fruitful going into the New Year and next earnings season.
Toy Stocks That Will Rule 2015’s Holiday Season: Hasbro (HAS)
The key for toy giant Hasbro’s win this holiday season comes down to one word: Disney (DIS). HAS has partnered with the media kingpin and has won the lion’s share of recent licensing deals for hot movies and TV shows. This includes major money-making franchises like Frozen and more recently, Star Wars.
Star Wars should prove to be a huge win for HAS stock.
Analyst Stephanie Wissink at Piper Jaffary described it best when she said that Star Wars was a “once-in-a-decade consumer product event.” That’s because the movies will have not only parents buying toys for their kids, but collectors and longtime fans of the franchise also spending.
All in all, she expects more than $2 billion to be spent on Star Wars toys and merchandise this holiday season. With the largest stable of products and licenses from DIS on the movie, HAS stock will see a huge percentage of that.
Already, that relationship has begun to be quite profitable for Hasbro.
HAS stock’s latest earnings were dominated by gains in franchised toys — of which Star Wars presales were a huge contributor. For the quarter, Hasbro saw a 9% increase in revenues based on strong sales tied to toys from the movies. Investor should expect similar gains, as well as HAS stock gains, in the upcoming quarter.
Toy Stocks That Will Rule 2015’s Holiday Season: JAKKS Pacific (JAKK)
While JAKKS Pacific may not be as large as HAS, it has what it takes to be toy stock gold this holiday season. Like Hasbro, JAKK stock has bet heavily on licensing for its profits. This includes a hefty amount of Disney-related items.
These deals with hot, content-driven franchises have helped JAKK stock see many of its latest toys land on various top ten lists at retailers this holiday season. Having the “it” toys that kids want is a sure-fire way to make your investors some serious bank this holiday season. JAKK should be able to build on its recent earnings-per-share gain of 8.7% and regain any lost revenues or sales decreases.
The key for investors is that JAKK’s industry-heavy reliance on licenses does make it more vulnerable to shocks, as media/content firms can move these deals quite easily when they expire. That fact causes JAKK stock to basically trade at a discount to many of its largest peers, as well as its current potential.
Toy Stocks That Will Rule 2015’s Holiday Season: LeapFrog Enterprises (LF)
One of the best toy stocks to buy this holiday season could be beaten down and battered LeapFrog Enterprises. The educational toymaker has seen its share price fall hard over the last year, and it now sits in penny-stock territory.
The problems for LF stock are vast. To start with, sales for its toys sank hard. Many retailers have recently dedicated less shelf space to the firm’s learning items. Meanwhile, the closure of Target’s (TGT) Canadian operations hurt LF immensely, as the retailer has been one of its drivers of sales. All of this helped LeapFrog realize a much greater loss than expected in the latest quarter.
However, there is some hope that could make this one of the toy stocks biggest values — albeit a risky one.
To start with, LF does have the product that many parents want. The firm is still the go-to name in kids-focused tablets for both learning and general use. Two of its latest devices have been named to hottest toys lists this Christmas season.
Secondly, tablets come with a steady stream of app-generated cash flows. Those cash flows plus recent cost savings initiatives should help LF stock ride out the next few quarters until growth returns.
And let’s not forget, as the “brand-name” in learning toys, LF could be primed for a buyout at these cheap levels.
At the end of the day, LF stock is a risky gamble, but it might just pay off.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.