In less than a month, Americans will celebrateBlack Friday , the
busiest shopping day of the year. People stand in line for hours to
get blowout bargains, and many retailers' cash registers will be
stuffed. Immediately after Black Friday, the holiday shopping
season begins, a critical time of year for many stocks.
One retail company benefiting from the ramp-up to the holiday
shopping season is the world's largest toy company,
, which employs around 28,000 people in 43 countries and sells its
products in more than 150 countries worldwide.
This year, the toy maker expects to earn 40% of its annual
revenue during Black Friday and the holiday season. Even without
this boost, however, Mattel has already had a stellar year and is
on target to deliver recordearnings for 2012.
Aggressive cost-cutting, effective international promotion of
new toys, and attractive packaging designs, are some of the
measures Mattel has taken to boost itsbottom line .
Additionally, its $680 millionacquisition of children's TV
producer, HIT Entertainment, is helping sales. The acquisition gave
Mattel branding access to popular children's figures like Thomas
the Tank Engine, Barney and Bob the Builder.
Further growth is driven by increased sales of the classic
Fisher-Price brand, as well as the American Girl and Monster High
doll lines, and Disney Princess Toys. Even though classics like
Barbie and Hot Wheels don't have the appeal they once did, Mattel's
stock is shining.
The technicals point to further priceappreciation ahead.
Shares have been on amajor uptrend since hitting a low of $21.68
in August 2011. Since this time, they've climbed almost 70%.
In April 2012, the stock stalled at $33.98 resistance and
struggled to maintain momentum over the following summer months.
However, in mid-July, shares popped several dollars and again
tested $33.98 resistance.
The following trading week, this resistance level was bullishly
broken. As a result, anascending triangle was completed. The
triangle was marked by the major uptrend line and resistance near
Shares continued to slowly climb over August and September, but
got stuck at resistance near $36. However, during the Oct. 15
trading week, the stock spiked around $2 in a week, blasting past
$36 resistance and moving on to hit a multi-year high of
This Oct. 22 trading week, the stock is trading nearby, around
$37. With no historical resistance in sight, shares could move
higher. The stock could retest or surpass its all-time high of
$40.99, hit in June 1998.
Thebullish technical outlook is supported by strong
fundamentals. In mid-October, the toy company reported much
better-than-expected third-quarter results.
Due to strong sales of American Girl dolls and Fisher-Price
toys, revenue for the period jumped 4% to $2.08 billion, compared
to $1.99 billion in the comparable year-ago period.
Analysts expected revenue to be only $2.07 billion.
With continued demand going into the holiday season, analysts'
project fourth-quarter revenue will increase 4.5%, to $2.3 billion,
from $2.2 billion last year. For the full 2012 year, analysts'
expect revenue will increase 3% to $6.5 billion, from $6.3 billion
The earnings outlook is similarly strong. Third-quarter earnings
exceeded analysts' estimates of $0.99, coming in at $1.04 per share
-- a 21% increase from the $0.86 per share earned in the comparable
year-ago period quarter. Management attributed the gain to
successful cost-cutting measures combined with strong sales of
popular brands, like Monster High dolls and Fisher-Price toys.
With holiday sales expected to be strong, analysts project
fourth-quarter earnings will jump 7.5% to $1.15, from $1.07 in the
comparable year-earlier period. For the full 2012 year, analysts
expect earnings to rise 16% to $2.53, from $2.18 last year.
In addition to a strong fundamental outlook, the company appears
financially strong. Management recently repurchased 139,000 shares
of common stock. In addition, they raised the company's
annualdividend payout 35% from last year. Mattel now pays an
attractive annual dividend of $1.24, yielding about 3.4%.
In addition to buying the stock, I am also going to earn
additional income by writing covered calls. The April 2013
$42strike price options currently are trading at about $0.43.
Receiving this premium reduces the risk on the trade by $43 for
every 100 shares purchased and puts cash into my account as
Risks to consider:
With the proliferation of electronic game technologies, like
iPads and apps, the younger generation is increasingly choosing
electronic devices over physical toys. Long term, that could be a
threat. However, for now, the company has a stronghold in the
physical toy industry and has carved out a profitable niche in this
Action to Take -->
Buy MAT at $37.06 or less. Sell one MAT April 42 Call for every 100
shares purchased. Set stop-loss for MAT at $33.96, slightly below
important support. Set initialprice target for MAT at $41.99 for a
potential 13% gain by mid-2013. If the $42 strike price is hit,
then surrender the stock and buy back the calls.
This article originally appeared on
Popular Toymaker Could Deliver Double-Digit
Gains Plus Income
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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