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4 Stocks to Bet on as Toy Makers Defy Coronavirus Worries

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The coronavirus (COVID-19) pandemonium has compelled governments across the globe to consider various stimulus packages to reinvigorate the economy as well as impose stiff restrictions on travel and public gatherings to minimize loses by containing the spread of the disease. Yet, the economic fallout is being severely felt with several indicators declining sharply. The world economy will likely go into recession due to the pandemic, with two-third of the world’s population living in developing countries facing unprecedented economic damage.

U.S. President Donald Trump on Tuesday warned of a “very painful” two weeks as the country battles with a coronavirus surge that the White House warns could kill as many as 240,000 Americans. The global number of confirmed cases has edged toward a million as of now while deaths neared 50,000, as the outbreak continued to ravage nations indiscriminately.

Although, a coronavirus-led recession appears inevitable, policymakers’ timely response can help determine how deep it is, how long it lasts and how quickly the economy bounces back from it. As the world gears up to develop an antidote for this deadly disease, economic stimulus packages and an integrated global approach to fight the menace could work wonders. In the meantime, let us all unite against this invisible enemy and advocate social distancing efforts to help contribute in containing the disease.

Toy Makers Stand to Benefit

Things are not always as they appear!

Social distancing may be an impediment on most industries, but it is actually proving a boon for toy makers. With the kids stuck at home and play dates and parks primarily off-limits, parents have been buying toys in bulk in the hope of keeping the little ones occupied and away from the TV while they work. Toy buying sprees are in vogue across the country while online sales of board games and building sets are increasing day by day.

In this context, Mattel, Inc. (MAT - Free Report) and Hasbro, Inc. (HAS - Free Report) are well positioned to tackle the pandemic as consumers shift their spending from costly entertainment to toys. Cutting back on higher-ticket entertainment spend has translated into replacing more expensive activities with cheaper in-home entertainment alternatives. Hasbro, in particular, is experiencing strong demand in its products during these struggling times.

Meanwhile, The Walt Disney Company (DIS - Free Report) parks in both Florida and California are closed until further notice due to the outbreak. In this situation, toy companies are getting involved in the fight against COVID-19. They are using their sourcing skills and factories to respond to shortages of face masks, ventilator valves and hand sanitizers.

Parents are looking for things for kids to do in the house that are not screen related. The coronavirus is also lifting sales at Basic Fun, maker of Lite-Brite and Lincoln Logs. MGA Entertainment, one of the largest U.S. toy manufacturers, launched an initiative to source masks from overseas factories and distribute them to hospitals. Pennsylvania-based toy maker —Crazy Aaron’s — is now making hand sanitizer at its Norristown factory, instead of the tins of Thinking Putty the company is known for. A Brooklyn, New York, toy design firm is preparing to begin using its 3-D printers to produce ventilator valves.

Notably, sales of MGA’s Little Tikes brand of toys were up 100% in March compared with last year. Toy manufacturers are uniquely placed to respond to sudden surge in demand. Playthings that keep kids busy for a long time while parents are working at home are soaring, given the prevailing sentiment.

What Our Rating Says

The Zacks Toys - Games - Hobbies industry, which has eight constituent companies, is housed within the broader Zacks Consumer Discretionary sector. It currently has a Zacks Industry Rank #17, which places it at the top 7% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is an outcome of positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential.

Promising Bets

Based in El Segundo, CA, Mattel produces toys and consumer products worldwide. This children’s entertainment company currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has been revised 185.7% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Electronic Arts Inc. (EA - Free Report) : Headquartered in Redwood City, CA, this company develops and distributes games, content and services for game consoles, PCs, mobile phones and tablets worldwide. Electronic Arts currently carries a Zacks Rank #2 (Buy). The consensus estimate for its current-year earnings has been revised 0.2% upward in the past 60 days. The company has a long-term earnings growth expectation of 8.2% compared with 11.4% for the industry.

Nintendo Co., Ltd. (NTDOY - Free Report) : Based in Kyoto, Japan, this company — together with its subsidiaries — manufactures and distributes electronic entertainment products in Japan, the United States, Europe, Australia, Asia and globally. Nintendo currently carries a Zacks Rank #2. The consensus estimate for its current-year earnings has remained stable in the past 60 days.

Headquartered in Pawtucket, RI, Hasbro operates as a play and entertainment company. It has a long-term earnings growth expectation of 12.4%. Hasbro currently has a Zacks Rank #3 (Hold). It has a trailing four-quarter positive earnings surprise of 109.4%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the last four quarters.

YTD Performance

Summing Up

A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries. In addition, global manufacturing production could contract significantly amid the possibility of extended disruptions to global supply chains. However, toy makers are scrambling to find additional factories that can produce what they need on short notice as demand has skyrocketed. They are also contributing to the broader cause by responding to emerging trends promptly, before the latest hot fad cools down.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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