The ‘Buys’ in the Fickle Toy Industry

It's not easy to get excited about buying toy company stocks. The U.S.
economy is showing signs of weakness, and the industry continues to have
problems with inflation, such as with plastics and paper, that have put pressure
on margins. Of course, the toy industry is notorious for being volatile. After
all, kids can get bored easily especially with toys. Despite all this, there
are some opportunities for investors looking at the sector. For example, some of
the companies are making strides with efforts like innovative movie tie-ins.
Also, there is a push into areas like mobile apps and social networking. So what
companies look promising? Here are the ones I like: JAKKS Pacific Over the
years, JAKKS Pacific (NASDAQ: JAKK ) has put together a strong portfolio of
brands. Examples include Road Champs, JAKKS Pets, Creative Designs International
and Tollytots. Interestingly enough, the company has worked hard to find ways to
lessen the seasonality of the business by creating evergreen products. But the
fact is Christmas still is critical. This isnt likely to change. But it looks
like JAKKS will have a good season, with the big driver being its Pokémon toys.
And the company has a healthy pipeline of new products that should get traction.
On the financial side, JAKKS definitely has a strong balance sheet, with about
$7 per share in cash (once you factor in the convertible debt). In fact, the
company pays a dividend of about 2.3%. LeapFrog Enterprises LeapFrog Enterprises
(NYSE: LF ) sole focus is building cutting-edge technology products to make
education fun. It's a great concept and yes, a strong business. Capitalizing
on the huge popularity of Apple's (NASDAQ: AAPL ) iPad, LeapFrog has just
launched its own version for kids. Called the LeapPad, this device allows for
picture-taking and doodling. To help things along, there are even animated
Disney (NYSE: DIS ) characters, making it possible for kids to create their own
interactive stories. Oh, and they can share them via email or Facebook. It's
an exciting product. More importantly, it could be a nice booster for the top
line. Mattel For the past three years, Mattel (NYSE: MAT ) certainly has been
good to shareholders. The average annual return was 12.51%. And there is no
reason to think the momentum will slow down. Its mega-brands, like Barbie,
continue to generate revenue growth. This especially is the case in foreign
markets. Mattel also has built a powerful business in toy licensing with feature
films. Just look at the success of "Cars 2." And yes, the company has plans
for other movies. In 2012, there will be Mattel toys for "Brave," which is a
Disney Pixar production. For the most part, Mattel's shares are affordable,
with a price-to-earnings ratio of 13. The company also has a dividend of 3.5%.