Even before heading to the local movie theater to enjoy the latest grandiose summer action flick, and shelling out an arm and a leg for tickets, candy, popcorn and sodas, investors can find ways to profit from the popularity of summer blockbusters. The so-called smart money already plays stocks like Disney (NYSE:DIS) and Marvel (NYSE:MVL) on the back of successful movies, product licensing agreements and DVD sales, but there is another buzzword hovering around the box office this summer: Hasbro (NYSE:HAS).
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Regardless of your age, you've probably owned or purchased a few Hasbro products in your lifetime. Maybe a Tonka truck for one of your kids, or perhaps you can remember a Christmas spent hoping for the latest Transformers or Star Wars toys to appear under the tree. In many ways, Hasbro's products are almost as ubiquitous as those made by a company like Procter & Gamble (NYSE:PG), but since Hasbro makes discretionary items, the company is more deeply tied to consumer spending trends than a maker of household necessities like P&G.
Some investors may consider Hasbro - and its chief rival Mattel (NYSE: MAT) - to only be good investment plays in advance of and immediately following the holiday shopping season. Well, that's not the case. At least, not this summer and not in the case of Hasbro
Hasbro Year-to-Date Performance: -20% Dividend Yield: 3.5%
Mattel Year-to-Date Performance: -5% Dividend Yield: 4.90%
Action-Packed Profits?
Most followers of Hasbro's stock pointed to the release of the Transformers sequel, Revenge of the Fallen, as a potential catalyst for the shares. As of July 5, the movie has grossed more than $293 million at the box office, but the blockbuster profits may not end there for Hasbro. The widely anticipated G.I. Joe movie, Rise of Cobra, hits theaters in August. While Hasbro has taken a back seat to Mattel as of late, having the exclusive rights to G.I. Joe and Transformers toys could be just the tonic Hasbro shares need to turn bullish. Those movies are expected to be two of the biggest releases this summer, and Hasbro is betting that, after parents take their kids to see the films, they'll be heading to the local toy store.
The benefits of box office success are no more evident than with shares of Marvel. Over the past five years, Marvel franchises such as Spiderman, X-Men, The Incredible Hulk and Iron Man have been box office smashes. Marvel shares have doubled in that time, while the S&P 500 is down almost 20% and Mattel, which doesn't have many movie tie-ins, is down about 10%.
Hasbro's movie-related profits aren't likely to end this summer either. Hasbro is intimately tied to Marvel at the movie theater, because Hasbro makes the toys inspired by movies based on Marvel comics and that means Hasbro shareholders will be in prime position when the Iron Man sequel is released later this year. In addition, Hasbro has rights to market the toys based on the recently announced Stretch Armstrong movie, which be out in 2011.
Not Just Movies
What makes Hasbro shares worth a look now is the movie affiliations. But going forward, Hasbro may be a compelling story because of much more than just movies. The 3.1% dividend is nice for the long-term crowd and granted that's lower than Mattel's dividend yield, but Hasbro's payout is higher in dollar terms.
Trading at just under 12-times forward earnings, Hasbro has $4.22 in cash per share. Mattel, on the other hand, trades at roughly the same forward P/E, but has far less cash per share at $1.13. Hasbro also licensing agreements for video games and mobile phone applications, including more than a dozen on the video game front. And for traditionalists, Hasbro markets Monopoly, among other board games.
The Bottom Line: Boys Beat Girls
This isn't about who is better on the playground or in the classroom, but comparing Hasbro and Mattel is kind of like a battle of sexes. Mattel's bread and butter is Barbie. True, Barbie has been around for 50 years and doesn't appear to be going anywhere, but she doesn't have the carryover appeal at the movies the way G.I. Joe and Transformers do. That makes Hasbro's focus on the boys rewarding for shareholders and the better bet in the short-term and perhaps for the long haul as well. (To learn more, check out Analyzing Retail Stocks.)
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