Mattel (MAT)

(A Top Pick Feb 9/17. Down 11%.) This was a tough retail environment. Less foot traffic to the stores has hurt sales. They’ve had to pay up for shelf space. However, he is sticking with the thesis. You are still getting a big dividend is 6.7%. Stock is trading at only 12X earnings. They own very valuable franchises.

Kids today no longer play with their previously manufactured toys. User preferences have changed. Doesn’t think the dividend is safe.

It goes in very long waves. It is about very long cycles. It will take a number of years for MAT-N to come back again.

He is buying this for some of his clients. Originally he initiated positions down around $20, saw it rise nicely into the upper $30s and it is now in the mid-$20s. The recent disappointing quarter gave this enough of a pullback to give him a good entry point. For the long-term, he sees an enduring franchise in their toy business. They are expanding the brand so that you have a doll that can handle just about any kind of social group that a child might want. A $30 price target seems reasonable to him.

The stock is off about 18% or so the last three months. There is a Barbie turn-around. Barbie grew in double digits. They paid up for shelf space during the holiday season which pressured margins. They are turning around in the right direction. They are moving to 3D printing. Once they start streamlining that process it will save tremendous amounts of costs in the future. (Analysts’ target: $31.42).

It is a disaster. Where is the catalyst for growth? Kids today are playing with toys very differently than in the past. They tend to download things to an iPad. HAS-N has been outperforming them substantially. He thinks there is more downside in MAT-Q and that the dividend is not safe.

He recently started looking at it. They have Barbie and Hot Wheels. They lost Frozen from Disney. They are now much more technology oriented with the Barbie line. Your customer changes every 4 years.

They have struggled. They are now on a downward spiral. Children are not playing with toys the way they were in the past. The dividend is attractive, but he worries about the long term prospects.

If you are looking for income and growth, this company is managing to do the exact opposite. Its balance sheet has been falling and earnings forecasts have been falling as well. Stock is quite highly valued in around 4X BV, which would be reasonable if the stock was a growth stock. Very highly priced and very poorly valued. He would be more interested in Hasbro (HAS-Q) if it had a pullback.

This is in the toy space with Fisher-Price, Hot Wheels, Barbie. Historically a good chunk of where their revenues have come from has been selling Disney toys. Recently they lost a Disney contract. The challenge now is around future contracts. The bigger issue is the way children play with toys now. They are using iPads, which have thousands and thousands of apps where they can do all sorts of things. Has an attractive dividend of about 6%.

This has been a really tough stock. Has come under quite a bit of pressure. You would think it would be a lower beta name and it seems that all beta names have gone up. They have really suffered from low demand. Have all sorts of Frozen stuff, which is supposed to be in high demand. Looking out a couple of years, this will probably be okay.