- Toys in the Attic
- Mattel (NASDAQ: MAT)
- The Gift that Keeps on Giving
- Hasbro (NYSE: HAS)
- (Stock)ing Stuffers
“As men get older, the toys get more expensive.”
– Marvin Davis
When Marvin Davis, the famed industrialist who once owned 20th Century Fox, made that remark, he assuredly was speaking of the fact that grown men don’t spend money on children’s toys.
Instead, they buy Lamborghinis, Rolexes, and – in his case – NFL stadiums.
What he probably didn’t consider is that his quote would be prophetic for actual toys.
Fast forward to today, all those kids that were playing with GI Joe action figures and Lego sets have grown up, and new trends show that they are still buying toys – at a higher price point and in greater numbers. In fact, adults are driving a quarter of toy sales every year, equating to $9 billion worth of new products annually. That’s the biggest amount of growth in the entire toy industry.
Some media outlets are calling them “kidults” which, while incredibly demeaning, is kind of true.
While the bulk of “toys” still gets packed under the Christmas tree for children, there is a growing trend with these “kidults” – continuing to spend record amounts of cash on nostalgia.
The trend has exploded in recent years, as toy companies have created brand new lines aimed at well-to-do adults with extra cash to spend.
Lego sells a Star Wars Millennium Falcon set for $849. Be@rbrick offers an Andy Warhol Mickey Mouse doll for $995. Looking for something more in the stocking stuffer category? Basic Fun has you covered with a “Lite-Brite” set for adults based on “Stranger Things” for $100. What was once a fun little activity to keep kids illuminated can now hang (proudly?) on a kidults wall as art.
According to NPD Research, kidults accounted for 60% of the dollar growth in the industry while accounting for only a quarter of the sales.
“It’s been a huge windfall,” Juli Lennett, vice president and industry advisor for NPD, told CNBC.
That trend only accelerated during the pandemic.
Toys in the Attic
I predicted this trend in 2020, once COVID hit, and I was stuck in my house with my two children. Like many, I went up into my attic for not only a respite but a yearning for simpler times. My son and I dug out my massive collection of baseball cards that I amassed when I was his age. I was astonished at what I found: a Rickey Henderson rookie card I bought when I was ten was now worth $2,000. I paid about $100 for it in 1990.
We kept digging…
All told, I unearthed over ten thousand dollars worth of precious cards. “How could this get any better?” I asked myself proudly. Then it did.
Now, like millions of other kids, my favorite childhood toys were He-Man action figures (more precisely, his nemesis Skeletor, which would make complete sense if you know me). I found a number of He-Man figures in my attic in various states of disrepair, including Skeletor’s famed Castle Grayskull.
Just have a look at what that’s worth today:
Now, I’m not suggesting that anyone will retire from old toys, but as you can see, nostalgia for childhood toys is alive and strong – both for vintage and brand-new ones.
He-Man was created by Mattel (NASDAQ: MAT) – the world’s second-largest toy company – in 1976. The company wanted to compete with the popular Star Wars figures that were wildly popular at the time. In a playbook that has since been run time and time again, they let the tail wag the dog. First, they came up with the toy, then they released a series of comic books featuring He-Man’s heroic escapades. After that came a cartoon series, a movie, and several spinoffs.
The plan paid off: He-Man made a respectable $38 million for Mattel in its first year. By 1984, it had earned over a billion.
Mattel has continued to follow this playbook ever since.
Mattel (NASDAQ: MAT)
As I mentioned, Mattel is second only to The Lego Company in size. They count Barbie, Hot Wheels, and Thomas the Tank Engine as part of their toy chest.
But inflation and supply chain issues have certainly hit the toy market this year, and shares of the stock are down almost 40% since their May highs and 22% in the last quarter alone. But that doesn't change the fact that over the last three years, the share price is up 25%.
So what does Mattel have up its sleeves to turn things around?
That old playbook: create content around already popular IP. That’s why Mattel launched its own internal movie company and is set to release “Barbie” in July 2023, alongside another He-Man “Masters of the Universe” movie and even more of the popular Hot Wheels animated series.
But they’ve added some new moves to that old playbook.
Speaking of Hot Wheels, the company recently unveiled its non-fungible token (NFT) marketplace on Mattel Creations – the company's direct-to-consumer platform – expanding its already robust lineup of digital collectibles like Barbies.
They are also launching Mattel Adventure Park sometime in 2023.
(Editor’s Note: The park brings me back to my attic, as it will feature a 4,500-square-foot Castle Grayskull in which you can play laser-tag. I’ll admit, that brings out the “kidult” in me).
That – and contracting inflation and supply chain issues – should certainly help Mattel creep back from their current 52-week lows. However, I’m wary of the pivot into what I consider gimmicks like NTFs, expensive risks like theme parks, and the complete lack of a dividend for Mattel.
However, I believe another legacy toy company is bound for a serious rebound in the short term and into the future…
The Gift that Keeps on Giving
Before I get to that company’s specifics, allow me to share a valuable toy-related anecdote.
The gift of investing is the best gift you can give to a young loved one. When my son was young, I gave him the single most boring Christmas gift in the world: a stock certificate. However, I did “spice” the gift up a bit so he wouldn’t be too confused or disappointed.
Since I wanted to make a themed Christmas present in addition to a gift of Hasbro (NYSE: HAS) stock, I also gave him a Monopoly set. That way, when he got over the letdown of getting a piece of paper for Christmas, we still got to unwrap Monopoly and play with fake money with the comfort of knowing that the real money was making itself.
Just have a look at what Hasbro stock has done in the last 20 years:
Notice the over 60% difference in return if you had reinvested your dividends in a DRIP during that time (which I have). If you make semi-regular contributions — say as part of their Christmas present each year — that number will be far higher. But the earlier you start, the better.
If Hasbro does anything close to that in the next twenty, my son will most certainly treat his old college buddies to a round of drinks for the holidays.
But how’s Hasbro holding up right now?
Hasbro (NYSE: HAS)
Hasbro is a huge toymaker. They produce all the Playskool toys, like that iconic red and yellow plastic car, Mr. Potato Head, Play-Doh – you know, all those nostalgic items that you can relate to as a parent. Add Nerf guns, GI Joe, and the rights to Transformers, Marvel, and Star Wars figures to that mix.
(Editor’s Note: They also own My Little Pony. For a more bizarre look into the kidulting of toys, look no further than “bronies”. If you don't already know what that is, you may be better off.)
That is to say that Hasbro owns some of the business's most nostalgic and profitable intellectual property.
They have taken a massive hit over the past year, dropping over 40%. That can be chalked up to the same inflation and supply chain issues that have plagued most companies this year. Hasbro also suffered total mismanagement of their Magic the Gathering card game line – 15% of their revenue – by overproducing the cards themselves, diluting the value, and outraging fans.
As I mentioned, as a fellow shareholder myself, I’ve been less than pleased with the returns this year. But let me explain why Hasbro is not on the “Island of Misfit Toys.”
A few encouraging fundamentals are lurking behind that stock slide. Hasbro has actually grown its earnings-per-share (EPS) 13% per year over the past three years. They have also increased their revenue over that span. Add a very merry 5% dividend, and you have a solid foundation for a long-term position.
Hasbro is also working with a new CEO that will help usher them into the digital age. Chris Cocks, who took over as CEO in February, is a former executive at Microsoft and previously helmed the digital gaming division of Hasbro, which is the home of the iconic “Dungeons & Dragons” game, as well as the “Wizards of the Coast” role-playing game.
Cocks is aiming to expand the company’s digital footprint to keep up with that obvious trend in toys and games.
“We (are creating) digital experiences that help to augment that core gameplay experience, help you be able to find new players, help you be able to bring the experience to life on the screen. And that’s been a fantastic addition to our portfolio,” Cocks said.
“We’ve been starting over a half dozen new studios to build blockbuster video game experiences that extend those brands and help us as a company be able to grow into what I think is a sweet spot of the future of entertainment.”
Mobile and desktop gaming can only help enhance the popularity of these brands, like Monopoly and UNO.
I think Hasbro has a solid future, and you can start a position now at bargain basement prices. As I write this, the stock has already climbed over 5% today.
(Stock)ing Stuffers
Back to the Christmas gift I gave my son. Here’s a bit of guidance for giving your loved ones a gift that can last a lifetime.
If you invest $4,000 into a DRIP around the birth of a child or grandchild and let it ride — meaning you never even contribute another penny to that investment — that $4,000 will compound to around $1 million by the time they turn 65. That is assuming a 9% return — which, with most of the DRIPs I recommend, is completely within the realm of possibility.
The earlier you start, the better.
It doesn’t have to be a toy company by any means. I’ve also done this gift exchange for my daughter with Hershey (NYSE: HSY) stock and a bag of Hershey kisses. Get creative. But you have to make sure the stock has a decent dividend that they can make last, or better yet, continue to grow. I recommend dividend aristocrats, which you can find a complete list here.
So this season, forget the toys: give the gift of wealth. The best part? You can do it today without worrying whether it’ll arrive in time.
Your little one will thank you later.
Happy Holidays, and my best to you and yours.
Jimmy Mengel
The Profit Sector
Follow me on Twitter @mengeled.
