Times have changed for Mattel (NYSE:MAT), but that's not necessarily a bad thing. If I had told you that Barbie and Hot Wheels sales were off by 11% this past quarter and that the company's top line clocked in flat with a $1.84 billion showing, it would probably have been raining Mattel a few years ago.
Not now. Not only are Mattel shares depressed to the point where all of that pessimism -- and more -- are already baked into the share price, but Mattel has new, diversified toy lines to cover for the laggards. Barbie's down? No problem. Mattel's got the American Girls brand spiking 12% over the holiday quarter. Stateside sales off by 2% in 2005? Stamp that passport and you'll find that gross sales rose by 5% overseas.
Mattel ultimately earned $0.58 a share before one-time items. That's better than the $0.52 per share it earned in the fourth quarter of 2004, and well ahead of the $0.49 mark that Wall Street was expecting.
In 2004, Philip Durell made Mattel one of the first stock recommendations for his Inside Value newsletter, and he's not the only one who feels that the company is a compelling undervalued stock. Mattel has been buying back its shares aggressively. Over the past year, Mattel's common shares outstanding have declined from 415.1 million to 400.2 million. And it seems that trend will continue; the company announced this morning that it would be investing another $250 million in its share buyback program. At today's prices, that would translate into another 17 million shares to be bought back.
Playthings can be good business and even better investments. Philip isn't the only newsletter guru scouting out the toy industry for treasures. David Gardner has singled out Hasbro (NYSE:HAS) for his Stock Advisor premium research service, and even Mathew Emmert has gotten in on the fun, picking Newell Rubbermaid (NYSE:NWL) -- the maker of Little Tikes toys -- for his Income Investor newsletter.
I bought some shares of LeapFrog Enterprises (NYSE:LF) a few months ago on the premise that the FLY pentop computer and new Leapster model would be hits. Unfortunately, FLY has yet to fly, and I'm sitting on what has become a double-digit percentage loss so far.
But that certainly shouldn't stop you from digging into toy stocks of your own. With software companies like Take-Two Interactive (NASDAQ:TTWO) stumbling due to a lack of interest in video games as the console manufacturers gear up for their next-generation models, this may be the best time for retailers to be selling more conventional toys -- and for investors to be buying more conventional toymakers.
Longtime Fool contributor Rick Munarriz is a kid at heart and he does own shares in LeapFrog. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
