What a year November has been; that's right, a single month felt like a whole year for some investors, who saw the S&P 500 run up more than 10.0% while the VIX crashed from above 22.0% to its lowest point since 2019. This may make you feel like you missed the boat, but don't give up.
There is still one last spark that could light up your portfolio before the year ends, and who likes to watch opportunities go by only to sit and think of how much money was left on the table? If you don't, then Christmas time will be rewarding, since a reliable toy-shopping spree will boost these stocks.
Industry classics like Hasbro (NASDAQ: HAS) and Mattel (NASDAQ: MAT) are set to ride this upcoming wave for reasons that will become clear in just a second; you now have the option to go for value or momentum, and if you are feeling lucky then maybe even end up with both!
Don't fight the record
It is a retail industry secret to boost sales during Christmas time and, more importantly, the months following the holiday to report an earnings beat and raise stock prices. How does management pull this off? Get ready to realize you've been the patsy all these years.
You see a commercial on TV, or nowadays on YouTube, about a new toy that can easily be the first thing on a child's Christmas list, and being a good parent makes you promise that Santa will be bringing that item when the day comes.
The problem is that the toy is sold out; not even Amazon.com (NASDAQ: AMZN) has it in stock. So you have to resort to the next best thing, which also happens to be sold by the same companies like Hasbro and Mattel. Cha-ching, the first sale tricks down in the revenue books.
But wait a minute, you promised to get the first toy choice, right? A child's memory is infallible when it comes to these things, so the pressure is on.
While the second choice is still good, this child recalls that a promise was made to get the first choice, and you don't want to break a child's trust, do you? Magically, a few days after Christmas, Alexa reaches out to let you know that the toy you wanted in the first place is back in stock.
For a second round, this time late enough so that revenue and earnings count for the first quarter of the following year, Hasbro and Mattel hear the cha-ching go again.
Story time is over, but now you know how these companies set themselves up to beat Wall Street expectations regarding earnings in the first quarter.
Patsy no more
You've been played enough; it's time to play back. By using MarketBeat's stock screener, you can find yourself comparing Mattel and Hasbro to other stocks in the consumer discretionary sector and come to the following strategy.
You see, while the sector is trading at an average of 95.7% of its 52-week high prices, Mattel and Hasbro trade at 82.0% and 62.0%, respectively, meaning they've been lagging their peers who have enjoyed a strong consumer spending trend in the past few months.
From a higher perspective, you can notice how these stocks have underperformed the Consumer Discretionary Select Sector SPDR Fund (NYSE: XLY) by as much as 58.2% on Hasbro's part and 27.5% on Mattel's part. However dismal this may seem, here's where the foundation for a potential buy gets built.
While the industry expects to grow its earnings by an average of 12.0% in the coming year, Hasbro (the worst performer in the group) analysts are projecting a bump of 43.0% in EPS.
Considering that Hasbro stock trades at a forward price-to-earnings ratio of 10.9x, a discount of 38.3% to the industry's 17.7x average, a value play is taking shape.
Regarding Mattel, analysts are pointing to EPS growth of 12.0%, which is right in line with where the industry is looking to grow. However, its 13.3x forward P/E still shows a discount of 25.2% to the industry's valuation.
Mattel stock is enjoying better price momentum (relative to its 52-week high) than Hasbro, so this makes for a good momentum play. Now, if you are not afraid of waiting or fighting price action, Hasbro may be the stock for you.
Analysts price targets imply a 55.3% upside in Hasbro stock from today's prices, which makes sense considering how cheap it is relative to its earnings growth projections. Mattel analysts only suggest a 32.0% upside, which is still high.
By picking Mattel, you give up a few things. Things like fighting price action, potentially having to wait longer to see profits, and roughly 20.0% more upside on the table. If that 20.0% is worth the fight, then Hasbro is your stock.