It’s that time of year again. The Halloween decorations are being put away and Christmas commercials are starting to make their way onto the television screen. Oprah released her “Favorite Things” list, and countless top holiday toys lists are spreading out across the internet.
Whatever happened to Thanksgiving? I’m not sure, but that’s a topic for another time.
In the meantime, I’ve always found the hottest toys lists fun to look over. Some odd new gadgets and gizmos are labeled as kid must-haves, and within days they’ve flown off the shelves and found their way onto eBay Inc (NASDAQ:EBAY) listed at much higher prices.
I did my homework this year and have to admit that I am well-versed in the nation’s hottest toys as we head into the holiday shopping season. I didn’t come up with any cool investment angle on these trendy toys — so other than some good banter at cocktail parties this knowledge is basically useless to me — but my research did lead me to look at one well-known tech company that I suspect is flying under the radar.
That company is Japanese game maker Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY), and it has two new products that could end up as top sellers. But that’s not all that matters. The other key factor is that Nintendo stock has the fundamentals and chart to back it up.
Its first hot product is the SNES Classic Mini Console, which is basically a reboot of the original 1990s Super Nintendo. The Super Nintendo was the ultimate video game console when I was younger, and I have no doubt that demand will be high for the SNES Classic Mini as Gen Xers try to relive their adolescent years. As of the end of September, Nintendo had already shipped 1.7 million units.
The second and likely more popular product is the Nintendo Switch, and several analysts have already singled it out as a top five gift for the upcoming holiday season.
There has been some early good news surrounding this product. For example, when Nintendo released its latest earnings report earlier this week, the company’s balance sheet showed a more than doubling in its inventory. I think management is preparing for a surge in demand.
Nintendo had previously forecasted 10 million Switches sold in its first year on the market, but after this latest report management upped their projections to 14 million — that’s more units than the Wii U sold in its entire five-year lifespan. So far, there have been approximately 7.6 million Switches sold.
Management also noted that one-fourth of the people who bought the Switch also purchased the Super Mario Odyssey game. It’s now the fastest-selling Mario game ever in the United States, and worldwide there are 463 copies being sold per minute — or nearly eight every second.
Nintendo Stock: Strong Earnings to Back It All Up
But having a few great products doesn’t make Nintendo stock a great investment. There has to be more under the surface, and the company gave us that in its latest quarterly report.
Both the top- and bottom-line numbers were better than expected, and management also raised their net sales and operating profit guidance for the full year.
The company now expects net sales of 750 billion yen, up 28% from previous forecasts, and operating profit of 120 billion yen, an 84% increase from the original estimates.
The numbers were eye-catching and the stock initially rallied to a new all-time high before pulling back as investors digested the news and probably took some profits.
Nintendo stock is about 3% above its 50-day moving average, and I view the weakness as an opportunity to buy in ahead of what will likely be a strong holiday season.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.