Toys for the Holidays

Written by GSCR Staff   
Thursday, 04 December 2014 08:02

Mr. McGuire’s famous advice to Benjamin Braddock, played by Dustin Hoffman, in The Graduate was "One word…plastics".

A quote from a movie released in 1967 is even dated for us, but the point is well made about the industry. Plastic parts and components are on just about everything we use and consume.

 

In this week’s Guide we mentioned that stocks behind companies that manufacture plastic parts could benefit greatly from the decline in oil. Today’s featured stock is coincidentally not only manufactures plastic products, but is a seasonal holiday play as well.

 

Hasbro, Inc. (NASDAQ – HAS - $57.46) may be a bit out of our preferred price range, but could offer another outstanding opportunity to get in on oil’s decline. The Company is actually a diverse multi-national with major product lines including electronic games, board games (they still exist???), media, and most importantly for our discussion, physical toys for children predominately made with plastic.

 

One of the major reasons to like companies with so much tied up in the cost of oil is improved margins. Hasbro has improved on both gross margin and operating margin over three straight quarters to current levels of 51% and 15%, respectively. The industry averages for these metrics is 39% for gross margin and 15% for operating margin. Lower costs means more improvement in these margins driving bottom line net income and earnings per share higher.

 

Technically, the short, medium, and long term EMA all indicate a very bullish picture. In addition, a momentum accumulation phase has the stock up nearly 8.5% over the last three months on nearly 1.2 million shares traded per day. Finally, our forward versus trailing P/E comparison checks out with 16 versus 20 respectively for the metric.

 

HAS should continue the momentum phase all the way up to the $65 sometime in Q1, a nice leftover holiday treat.

 

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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