Forget Gold, Buy Toys Instead

Watch Hasbro, Mattel before movie releases with toy tie-ins

All companies with lagging share prices should consider launching toys to coincide with their other initiatives, given what a UBS analyst has discovered. Robert Carroll focused his research on Hasbro Inc. and Mattel Inc. - two U.S.-based toy marketers and manufacturers, on which he raised his target prices on Monday - but could a Goldman Sachs Lloyd Blankfein action doll now be in the works?

Mr. Carroll found that Hasbro and Mattel have outperformed the S&P 500 over the past five years during the six months leading up to a major movie release that has toy tie-ins (or "toyetic" releases, as he calls them). The level of outperformance, at 7 percentage points, is certainly not trivial. And what's even better, the outperformance continues after the movie's release: Generally, six months after the movie releases, the two stocks beat the S&P 500 by about 15 percentage points.

"While expectations can often build into a summer movie launch, historic stock performance for both Mattel and Hasbro suggests that upon the launch of a blockbuster franchise film (either original or a sequel) Street estimates can often prove conservative as select franchise films (Cars, Toy Story, Transformers, Star Wars) are able to maintain strong sales levels beyond the six to nine month window following the movie release," he said in a note.

"Beyond the initial buy-in at retail and subsequent sales around the movie launch, major properties continue to remain relevant throughout the holiday season as DVD releases are normally synchronized with the holiday shopping season reinvigorating toy sales associated with summer blockbusters as the names remain culturally relevant to kids."

After discovering this trend, Mr. Carroll bumped up his 12-month price targets on both stocks, but maintained his earlier recommendations. For Hasbro, he raised his target to $41 (U.S.) from $36, but maintained a "neutral" recommendation.

He's considerably more enthusiastic about Mattel, thanks in part to tie-ins to the upcoming Toy Story release. He raised his target on the stock to $30 from $26, and maintained a "buy" recommendation, partly on the premise that the company should generate earnings of 18 cents a share in the second quarter, up from an earlier estimate of 14 cents. He also thinks the company will hike its dividend, which currently yields 3.3 per cent, to 90 cents a share from 75 cents.

By David Berman