Motley Fool Hidden Gems Investing - Motley Fool Money: 11.25.2011

Episode Date: November 23, 2011

On this week's Motley Fool Money Thanksgiving Special, our analysts give thanks for some stocks and share a few turkeys. In the spirit of Black Friday, we talk about some bargain stocks. And Toy Expert Chris Byrne talks about hot holiday toys and sheds some light on an emerging market for My Little Pony. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. And joining me in studio this week, for Million Dollar Portfolio, Ron Gross. From Motley Fool Income investor James Early, and for the second week in a row, from Motley Fool Inside Value, Joe Mager. Joe, thanks once again for sitting in for Seth Jason. It's Thanksgiving weekend, it's Black Friday weekend, and we've got toy expert Chris Byrne to talk about the hottest toys of 2011 and the companies with the greatest influence in the toy industry. But we're going to take a step back, and Thanksgiving gives us the chance to talk about stocks that we are thankful for, and frankly, stocks that we think are turkeys. And, yeah, I was just

going to say, long-time listeners know, we don't have a lot of frills on this show. Ron does a great turkey impression. We don't really have sound effects. And yet, for this show, our man behind the glass, Steve Broido, bringing it up. Is it wrong that that pleases me so? No. It's oh so what. So, we'll get to the turkey stocks in a moment. But first, let's just go around the table. Ron Gross, a stock you are thankful for, for whatever reason.

I am very, very thankful for Domino's Pizza, ticker symbol DPZ, for a couple of reasons. One, I love pizza. I am a New Yorker. It is not my favorite kind of pizza, but it is a go-to for birthday parties and those kinds of things. But more importantly, for what it's done for my portfolio, back in the day, a couple of years ago, bought it at around $4,000, stock's now at $30,000. I don't get a lot of multi-baggers like that as a value investor, so this has been one that's been pretty great for me. What is your least favorite topping on pizzas? I've never been an anchovy person, but I've got to say, I've never even tried it, I don't

know. How do you know? It frightens me. What about the pineapple? Why are they so- That is my favorite topping. It is? Really?

Yeah. Pineapple, no ham, because I don't eat that stuff anyway, but just plain pineapple. You've got your priorities entirely backwards there. James Early, a stock you're thankful for? Chris, I'm going with Walmart, which, speaking of toys, is- No, no, no, no. It's a big toy distributor. That's the gift that keeps on giving, isn't it?

Walmart has basically been flat for the past 10 years. It is up about 10% since I recommended it in my income investor newsletter at the end of March. But I think it has another 14% to go. It was sucking wind a while back. It tried to copy Target with this kind of higher-priced minimalist line. But it did that right during the recession. So it's had negative sales for a while, same-store sales. But it's starting to suck less wind, which is the good thing.

I think the valuation is attractive. Is it all about the valuation for you and the dividend? Well, yeah, the company is obviously a winning format overall. They might have made some mistakes, but the parking lot is packed. It's miserable to be in there because there's so many people, but it's good if you own the stock, right? Joe Mager, your stock that you're thankful for? I'm going to go with Google.

I use Google Search probably 50 times a day at work. It's crazy. And I use YouTube all the time when I feel like screwing around at work and watching funny videos. Kidding aside, I think they've done an amazing job of making the world's information easily accessible, organizing in a great way, and I think they're doing stupendous things

on pushing back with governments who are nosy and trying to pry into our data, and Google more than Yahoo and Microsoft has stood up to those governments, and I appreciate that. Speaking of prying into data, if you were just to watch a funny video, what type of things would you type in? Yeah, just like keyboard cat, or what are you looking for?

I'm a big fan of the Lonely Island guys from SNL. I've never heard of this. Andy Samberg. Andy Samberg. Captain Jack Sparrow, the video. Yes. From Saturday Night Live. I don't really know who he's talking about.

I still have no idea who he's talking about. I felt uncomfortable, so I said yes. All right. The polite yes. Steve reminds us it is time to move on to the turkey stocks. So, again, Ron, for any reason, for any reason. It's a long list. There are a lot of turkey stocks.

Let's not kid ourselves. But you've got to pick one. Maybe. It's been Time Warner, TWX. And I've owned this so long, I can honestly tell you, I don't remember if I bought it before or after the whole AOL debacle. You've owned it for that long? Yeah, a long, long time. And I'm losing a lot of money. And it's one of those things that you almost forget it's in your portfolio, and you kind of just hold it forever. But I think maybe this-

How big is your portfolio? Don't worry about it. But I think this show may spur me to finally dump it. It's just been a job. I was going to say, if it's been that bad for that long, why in the world do you still hold these on? It's inertia, right? It's going to come back, maybe. Are you lazy or are you hopeful? You know, I'm a long-term investor. Okay, so that's yes to both.

James, turkey stock for you. I am going with Turkcell, which is literally a Turkish phone company. I don't hate this company. What is the ticker? TKC. It was actually a recommendation, an income investor, but it has these three big owners, and they've gotten into this Jerry Springer-like bickering. A Turkish billionaire controls the company

and was supposed to sell more shares to a Swedish company, but then he reneged and sold them to this Russian company instead. They were fighting, but then they got sick of fighting and decided that they didn't like him even more. They joined up to gang up on him, but he's kind of evasive. He's been convicted for some crimes before, kind of a shady character. Bottom line is the Swedish company now, to teach him a lesson, won't vote to agree to pay the dividends.

So, it's this big mess, and it's just ordinary little phone company. Pretty much your standard boy meets girl story, right? Exactly. Ordinary phone company trapped in the middle of all this. So, that's my turkey. It seems like, I don't want to generalize, but it seems like anytime you get, I don't know, these, in their own way, iconic billionaires at the top of companies, it just seems like a situation that is fraught with danger for investors. Bad things happen, yeah. Joe Mager, your turkey stock?

I'm going to go with Garmin. It's something that I've been... I've been short with puts for a while, and it hasn't paid off for me, but I think the business is a long-term sinking ship. Personal navigation device sales, so the little GPS units that you have on your dashboard, for example. Not exactly a razor, razor blade business model. It's a one-off thing. Prices are falling as demand falls. Everybody can just use a map on your iPhone, your Google Android phone. You've got a ton of rivals popping up. They don't have any real competitive advantages. And they don't just deal with just GPS devices and cars. But ultimately, I think that broader trend of cheap competition is going

to keep eroding their profits. Steve Broido, long-time listeners know you are an active investor. I'm sure you have a turkey stock. Yeah, there's a couple in there. Go ahead. Cameco. I bought some Cameco, which was a uranium mining company. What is the ticker symbol on that? uh kamiko is ccj yeah that's the one oh okay that's the one has not quite performed it was after this the horrible stuff that happened in uh fukushima in japan it was a terrible thing um but i i think that there's is a future in uranium um no one agreed with me

um flipping it around though do you do you have a stock that you are particularly thankful i'm still bullish on uh on sirius satellite radio i love radio and uh i loved i loved it at 30 some sense and i love it more to wherever it is now a dollar 80 or whatever you know that this radio show is not currently on satellite radio it's unfortunate i would love it if it were all right as a shareholder can you pull some strings i will do my very best stop my feet at the board meeting steve what happens to sirius when howard stern retires i i don't think he's going to retire ever uh eventually he will but i think that they'll probably do some legacy deal with him where he'll his his channel will remain he probably has a 30-year archive you know yeah

I mean, he's only working three days a week now anyway. Right, exactly. In the couple of minutes we have left, when I think Thanksgiving, and frankly, I'll be honest, Thanksgiving is my favorite single day of the year. Me too. You can have any other day you want, give me Thanksgiving. It is my single favorite calendar day of the year, in part because of the food. So let's just go around the table.

What is your go-to Thanksgiving food? It's all so good. Yeah. Sweet potato pie. Really? would be my one, but hot, not cold. It's part of the meal, not the dessert. Do you make this? No, but my

mother does. She does it well. What is a sweet potato pie compared to sweet potatoes? Mashed sweet potatoes with maybe some cinnamon and maple syrup, probably butter or something like that. Oh, because it's like a mashed potato, like a fancy version. So mine is actually sweet potatoes souffle. Well, you're fancier

than I am. Also, which my mother makes. Yeah, but we get some marshmallows on top with some nuts. Yeah, my mother often makes two, one with marshmallows, one without. Yes, and I get both, and I put them together. Nice. Wow. James, I'm going to go on a limb and say that yours does not involve sweet potato pie or marshmallows,

but there's a good chance I'm guessing kale is involved. You were right, Chris. Yeah, I don't mean to be predictable, but if you look, everybody goes for all the standard things, the potatoes, the turkey, the utensils get sticky, they get slime on them, but nobody touches the salad. So if you go to the salad, you just get this great salad all to yourself. Wow. Okay. Just wow. I'm a value investor.

Steve, what about you? Hook me up with some stuffing. Yeah. I was just going to say- Cornbread? Oh, that's good, too. No. Cornbread stuffing?

Oh, sure, yeah. Straight up. No, no. Mine is stuffing as well, but it's not cornbread. It's like a sausage and saltine based. Wow. Basically get like a package of saltines and crush them up and throw the sausage in there. It's like heart disease. It's one day a year.

You know what? It's one day a year. And frankly, if all I had on Thanksgiving Day was just a plate of stuffing with some gravy on it, I would totally go with it. Good times. Dessert as well? Dessert, I don't even, what's it, apple pie would be, I guess, pumpkin pie. I don't want to, should I mention all of them so nobody has anything else to say?

No, I was just, I mean, it seems like you're- An apple crisp I would go with. James, I'm dying to know what your decision is. You know, I'm not a big dessert guy, as you might guess, but I do like pumpkin pie a little bit. Joe? My fiance makes a mean apple tart. You're just spinning off everything Ron says, aren't you? Yeah, I'm just a little Ron.

Variant. All right. Ron Gross, James Early. Joe, guys, thanks for being here. Thank you, Chris. Black Friday is all about finding bargains. Coming up, we will go hunting for some investing bargains. Stay right here.

This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. It's Thanksgiving weekend, time for turkey, some football. It is also time for Black Friday shopping and bargain hunting. And here to help with some investing bargains, once again, it is Joe Mager from Motley Fool Inside Value. Thanks for sticking around, Joe. Thanks for having me again. You've got three stocks you say are bargains for investors right now. The first one is eBay.

eBay, yeah. So, fitting with the cheesy theme of bargain stocks, bargain shopping. But I do actually think eBay shares are really attractive right now for a few reasons. One is that the core marketplace business, so eBay.com, that we all know and love, is actually doing a lot better than most people think. I know a lot of people think that it's kind of a second fiddle to Amazon, And it is a second fiddle. But there's room for more than one winner in the marketplace business and in online commerce. And they've been doing very well. Merchandise volume was up about 17% last quarter. And I think you're going to see that continuing to grow, if not too far above the general online retail market. Still in line, which is a pretty nice growth rate.

How much of the attractiveness of eBay as a stock is tied up in PayPal? Because it kind of seems like when we talk about eBay, PayPal is really the jewel in the crown. It really is. You know, eBay itself is a fine business, but PayPal is the real jewel, as you said. And I think that if it was trading independently, it'd probably be my favorite stock idea. Alas, it is not. So, you're just buying the whole thing. So, the beautiful thing with PayPal is that it's kind of taking advantage of two big tailwinds. One is, more people are spending money online. They're buying more things, and they want to do it quickly and securely. So when you enter a credit card, for example, it takes a long time to whip

out your wallet, type in all your credit card information, your address and whatnot. With PayPal, it's basically as simple as you enter your login information. It's quick, secure, easy. Consumers like it for those reasons. But merchants also like it because they get higher conversion rates at the site because you don't spend all this time typing in your 16-digit number. So it's a win for merchants. It's a win for consumers. And so what you're seeing is more merchants are accepting it. It's up to 63 of the top 100 online merchants. It was 56 a year ago. And you're seeing about a million new people register every month with PayPal. So right now it's about 103 million people. It keeps growing about a million a month. And more users, baguettes, more places that serve

it or accept it, and vice versa. So, you see all that just flowing together, and ultimately, it comes through in dollars and cents. And what we would expect there is an acceleration of growth with a classic network effect, and that's what's happening. They had the best sales growth rate in the payments business in over three years last quarter. It was up 30%. And, you know, very strong numbers for a business that I don't think is too richly priced. And to be honest, I think PayPal is going to be a pretty big long-term hit. Now, your second stock that you say is a bargain, Berkshire Hathaway. I'm assuming you're talking about the B shares, which are much more affordable than the A shares.

Right. Well, you could sell your house and buy an A share, or you could buy some B shares that are much more reasonable. Yeah, I think everybody kind of knows the Berkshire story, or if you don't, it's Warren Buffett's baby, and he's been the leader there for going on four decades plus now. And he has compounded book value at a rate above 20%. If you bought Berkshire forever ago, you're probably very wealthy and you don't need to listen to financial media anymore. You probably own some financial media. What I like about the stock today is two things. One, you're still getting all the benefits of the best investor ever running the company for you.

The second is you're buying in at a historically attractive price. It's been more than 40 years since Buffett's offered to buy back shares. and he's doing that again today, which should tell you, when history's best investor is actively buying back stock of his own company, and he hasn't done that in decades. That's a good sign. That's a pretty big indicator. I don't know how much more of a tip-off you would need than that. So, Buffett's pretty subtle with this kind of thing. He doesn't bang a drum about his own stock, but that's a big hint that the stock is cheap, and I've definitely been loading up myself.

Your third bargain stock, Johnson & Johnson. Again, this is a big company, obviously a very diverse business. Why is it such a bargain right now? So, J&J is out of favor for consumer recalls that have hurt the brand image. And people think that- They've had a bunch. They've had a bunch. They've had a whole bunch.

They've had them on the consumer side and on medical devices. And I think a lot of people, quite reasonably, are wondering about quality control. But I think if you look at J&J, there are a few things that, you know, that kind of quick and dirty analysis misses. The first is that its revenue base is incredibly diverse. Pop quiz, what is their biggest product? Band-Aids? I don't know. It's actually Remicade. What is Remicade?

It's for treating if you have blood conditions and you have rheumatoid arthritis. It will help you move around easier. Point being, most people just assume that these guys just sell Band-Aids, but it's this hugely diverse business, and Remicade's only 7% of sales. So when people get caught up on how Johnson's baby oil might be temporarily out of fashion, that really isn't of consequence to the bottom line, but it's hit the stock like it has. So that's one thing. The second is people are just hung up on this in a negative way,

not unlike what you saw with Tylenol back in the day. Now, what subsequently happened, it turns out that people were still true to Tylenol as a brand. It took a short-term hit, but the stock did too. And it went on to do very good things. It was a very durable brand. And I think investors who get in today are going to be able to benefit from the same thing. When I think about Johnson & Johnson, obviously, as you said, it's got this diverse business. Because on the more consumer product side, it's hard for me to come up with meaningful competitors, although I know that like Procter & Gamble is certainly in that space. But on the drug pipeline side, it's really easy for me to come up with, you know, you look at Merck and Pfizer and Abbott Laboratories. I mean, there's strong competition on that side, isn't there?

Well, there is. But the nice thing is you've got really fat margins and they don't have the patent cliffs that someone like Pfizer does. So you don't have to worry about that broader concern. And, you know, some people are also worried about big picture health care reform affecting them. One, we don't know what the impacts of that are truly going to be. Two, about a quarter of the revenue is consumer, which would be untouched anyway. Three, more than 50 percent of sales come from outside the United States. So once again, people taking this not unreasonable but small concern and they're just applying it to the overall business when really it's just touching small parts of it. OK. Joe Maker. Joe, thanks for being here. Thanks for having me. The Singamajig, the Pillow Pet, the Bigfoot Monster. Are these terrifying creatures poised to invade your home and torture you? Yes. Yes, they are. Because those were some of the hot holiday toys of 2010. 2010. Steve, I know there are pillow pets in my house. Didn't your nephew get a Bigfoot monster?

He did, yes. Nephew Colton received a Bigfoot monster, and he's this little, he looks like a little troll doll, except he's robotic and you have to recharge him. And yeah, he stomps around the house and you can throw him a ball, and it's crazy. It sounds kind of cute. He is cute, but he's very, he was a big part of Christmas last year, I'll say that. All right, that was last year. So what are the hot holiday toys for this year? Well, our guest this week has the answers. Chris Byrne is the toy guy, an expert in the toy industry. We'll dig into the hot toys for 2011. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. With the holidays upon us,

It's time to talk about toys and the companies behind them with The Toy Guy. Chris Byrne is an expert on the toy industry and the director of content for Time to Play magazine. Chris, good to talk to you again. Thank you. It's nice to be with you. So let's just jump right into it. I've got three kids. Tell me, what are some of the must-have toys this year? Well, you know, there is no one big hot must-have toy, and we always think that is so good. Yes, so do I.

You're buying things that are appropriate for your kid. You're not making yourself nuts at the 11th hour running all over your town trying to find something that you're not even sure your kid's going to love because you have to have it and it's a fad in the culture. That said, there is a ton of classic play, some really new innovations in technology, everything from the 3D breakthrough puzzles from Mega Brands, which is an innovation in the jigsaw puzzle category, something that hasn't been updated that much in 350 years since it was introduced, to high-end, high-tech cameras and tablets that are designed for little kids from LeapFrog and from VTech. Wow. That's really running the gamut when you go from puzzles to tablets for kids. It is, and you know what? Here's the thing, though. When we observe kids, we see that they naturally play in all of these different categories.

We call it the balanced toy box, which is not unlike a balanced diet. Kids want these different play experiences and naturally seek them out. You're listening to Motley Fool Money, talking with toy expert Chris Byrne. I want to get into some of the toy makers in just a moment. But first, I'm curious, what is, again, you're someone who really studies this industry, what is the best toy out there that no one is really talking about? It's sort of flying under the radar this season, and you think this is a really great toy. Well, you know, it's really a brand new game called Doggy Doo.

And, yes, it is exactly what you think of. And that's the response. That's the response. It is a plastic dog that you feed, like, modeling compound to, and you squeeze its leash, the handle on its leash, and eventually it does its job. And this is obviously for four or five-year-olds. They cannot stop laughing when they see it, and really neither can adults.

We just, you know, there's something fascinating about a pooping dog. I mean, I just said it. There you go. I was going to say that, yeah, I'm sure this is good for four- and five-year-olds. It's also good for a number of my colleagues here at The Motley Fool. Let's go to some of the bigger players in the toy industry. Because when you look at retail and distribution, you've got Walmart, which is the largest retailer in America. You've got Amazon, the largest online retailer.

And then you've got McDonald's, which is the largest distributor of toys, I think, in the world, certainly in America. Who has the most influence of those three when it comes to affecting toy makers? Well, I think it certainly would be either Walmart or Amazon because McDonald's is also the largest toy manufacturer in the world. They manufacture all of their toys that they give away with the meals to their own specifications. those are usually planned 18 months or so in advance, and they're usually promotional. They're very important for brand building. So say, you know, if a Playmobil or if a Hot Wheels and Barbie or Monopoly, all of those are very important for brand building,

but they don't really drop that much to the bottom line of the toy companies. It's really having that Walmart order, increasingly that Amazon order. Amazon has really gotten their stuff together in the past couple of years and become a major force in the toy industry, especially in the online sales. Are there any major trends that you're seeing in the toy industry? Well, I would say that it's really about the classic play. It's really about that play that engages the child. Certainly they're playing with their electronics, they're playing with their video games,

but the things that get kids sitting down, having social time together, concurrently with the rise in technology and the iPad and the iPhone and all of that for kids, we're also seeing a boom in arts and crafts. because, as I was saying before, that balanced play box, kids naturally need that balanced diet. You mentioned the iPad, and certainly that's been really the breakthrough toy for adults over the last year and a half. What are some of the companies who have really benefited from the iPad, and what are maybe some companies that have been hurt by it in the toy industry? Well, I certainly think a company like Disney is going to benefit from the iPad

because they've made it very high on their priority list this year. They have a wonderful karaoke machine that uses the iPad. They've got AppMates, which are cars, small cars that kids can drive on the iPad that brings the world of cars to and radiator springs to life. They've certainly done that. You look at Mattel. They've taken Angry Birds, which has been a huge game in apps, probably the largest in the world, from Rovio,

and they've adapted it into one of the hottest-selling games of the year, the knock-on-wood game, virtually sold out and almost impossible to get right now. So it really has inculcated itself into the culture so that kids are really willing and ready to play with it, and they can master it. You know, moms hand them the iPad or the iPhone to get them to be a little bit more quiet if they're on an airplane or out for a journey. What about a company like LeapFrog? It seems like while that was probably, if not the leader, it was among the leaders in electronic toys, educational toys for kids.

To what extent is LeapFrog hurt by the iPad? Well, I think LeapFrog has taken a really interesting strategy in this. They've introduced their own tablet called the LeapPad Explorer. It's designed for kids ages 4 to 9, and normally I would say 4 to 9. That's a huge age range, but they've designed it in such a way that a 9-year-old will think it's cool and a 4-year-old will think it's cool. It's got a touchscreen. It's got different apps, things you can download.

You can connect it to the computer. It's got a camera, a video camera, a lot of the elements that kids know from iPads. And I think its real strength is in the curriculum, which auto-levels to kids. So as you get better, the curriculum increases. If you need a little more help, it'll give you that. But it's also an alternative to the iPad. If, say, Dad is working diligently on his iPad or trying to get that next level of Angry Birds open, the kid can have their own thing to play with as well.

And the challenge with the iPad, of course, is you've got a very high opening price point. So your market, your potential market, is a lot smaller than, say, a mass market toy. You mentioned Angry Birds before. Are you surprised at how this one little game for the iPad has branched out into everything from physical toys to pillow pets and on and on? I think it's actually the same as we've always seen from movies and TV shows, that a property or a character gets a life in one entertainment medium and it makes a natural leap over into toys. it's really the same stuff as licensing has been doing for years and we're just all raising our eyebrows because but it's coming from the ipad uh you know but it's it's really the the thing

about that is is that it's very high high awareness among people a lot of people have played angry birds on different platforms so it's very natural that you'd see toys and i i actually have a an angry birds water bottle that i carried at the gym so so it's a lot of different products where you can show your affinity for something Do you think it has staying power? Is this going to be something we'll be talking about 10 years from now? Or is the wave about to break for Angry Birds? I think what's going to happen is what you see happen with a lot of different properties,

which is the core game is probably going to stay the same. They keep updating it. It is an addictive game, at least for me and my colleagues. And I think that there's going to be products that come and go. And what we've seen is it's not over-licensed. Commonwealth has some great sort of talking plush. They've made sort of that red playground ball. They've painted it to look like an Angry Bird.

Mattel has done stuff with the game. They're looking at how do you integrate games and apps. That's going to be something, a trend you're going to see throughout the toy industry in the coming years. So I think that it's not been over-licensed like some properties might. So I think it's going to be sticking around for a while. You're listening to Motley Fool Money, talking with Chris Byrne, the toy guy, director of content for Time to Play magazine. What has surprised you the most about the toy industry over the past year?

I think the level at which the manufacturers have responded to the realities of the marketplace and the level of innovation that has been put into lower-priced items. There's a lot of play in it. If I look at Hot Wheels, the largest brand of toys in the U.S. by unit volume, they've come out with a thing called Wall Trax, which uses the 3M hooks technology to put tracks, paste tracks to the wall and create all kinds of different things, different stunts with the cars. Gets the Hot Wheels off the floor, onto the wall.

Great play for kids, non-marking. It's really great. It's exactly the kind of thing I used to do driving nails into the plaster of my bedroom when I was a kid, you know, stringing up all the track and things like that. When it comes to creating these toys, you know, obviously, as we talked earlier, there are these major forces, these major economic forces in companies like Walmart, Amazon, McDonald's, and they wield a lot of influence. Is now a good time to be an independent toy maker, to be one of these small companies, or is it tougher than ever for companies like that? It's a great question. I think it's about the same as it's always been, which is it's tough to be a small toy company. It's hard to get shelf space at, say, a Walmart if you've

got only one major item out there. Incidentally, that Doggy Do Get game I mentioned is from a small company, independent, called Goliath Games. And it really speaks to the fact that this is a product-driven business. So this is a company that we're just really finding out about, and they've got a great product. And at the end of the day, kids love products. They don't really know about brands, but what retailers are looking at are programs and things that they can put in store that will generate a certain amount of revenue per square foot. So it's hard if you've got just one product to get that toehold at Walmart, which is why companies like Amazon or Toys R Us Online or other online things and independent toy stores, even though there's fewer of them, are very important to the smaller manufacturer because it does get you that toehold. You do start to build an audience, and then maybe Walmart comes knocking on your door. How big is the holiday season for toy makers?

Is it big enough that as long as they have, and for retailers too, is it big enough that if they have a really strong holiday season, then that essentially makes their year? Well, certainly from a toy standpoint, the fourth quarter is all-important. Over the years, they've tried to make it a year-round business, But really, between 60% and 70% of all toys are sold between October 1 and December 24 of every year. And these are the toys of the higher margin, the more expensive ones. It's make-or-break time for toy makers. And last year, there was certain concern because a lot of inventory carryover at some of the big retailers.

This year, they've been a little bit more strategic and cautious in the inventory, which means it's going to be a little harder to find some of the hot toys for parents. But at the same time, you're not going to see the kind of sales that we've seen in the past. I think that retailers finally have learned that basic economic lesson that we learned in college, which is demand high, supply low, price can stay high. You don't have to do these drastic markdowns in order to get people into the store. Coming up, more with toy expert Chris Byrne and a round of Buy, Sell, or Hold. This is Motley Fool Money.

the toys gave a party for papa santa claus welcome back to motley fool money i'm chris hill talking with chris burn expert in the toy industry the toy guy if you follow him on twitter um at the motley fool we focus obviously on public companies and when we look at the toy space we see companies like Mattel and Hasbro and LeapFrog. Certainly, over the last year or so, it seems like Mattel has been doing better, has provided stronger returns for investors. I'm curious what your perspective is. When you look at Mattel and Hasbro, what are the trends that you see for those companies? Well, they're two very different companies, and people tend to lump them together and say, well, you're the two biggest toy companies in the world.

But really, Mattel has focused on its core brands, Hot Wheels, Barbie, Fisher-Price, new products like Thomas the Tank Engine. They've just acquired Hit Entertainment, which brings all of that inside. So instantly there's about a 17% increase in revenue because they're not paying royalty fees on that. So they've been very strategic and very sort of, well, strategic and almost conservative. much more from a brand-building type of company. Hasbro, on the other hand, is taking a few more flyers.

They have become an entertainment company with certainly a huge hit with Transformers, huge hits with Iron Man, and some of the films that are in development. We've got Battleship coming next year, Stretch Armstrong, Monopoly, Candyland, all of that IP that they are trying to leverage into entertainment. They've taken a big risk, which I personally believe is going to pay off for them with the hub. It's going to take a while to establish, but kids are starting to find it. They're getting stronger programming. So I think that that's going to be more of a sort of 360 entertainment type of company for them.

And so very different from Mattel. With respect to Mattel and Hasbro, what are really the biggest moneymakers within those two companies? For Hasbro, is it something like Transformers or is it something else? And Mattel, my assumption with Mattel is that it's Barbie. But I'm curious, what you think are really the two biggest franchises within those two companies? Well, certainly right now for Hasbro, it is Transformers. And they've got a lot of real strength in some of their smaller brands, such as Play-Doh and Littlest Pet Shop and My Little Pony.

And a lot of those, they tend to spread out the wealth more a little bit among some of their brands. They've done very well in revitalizing their PlaySchool brand over the past couple of years. They've now got the Sesame Street brand, which is going to make a contribution to their bottom line. Mattel, Barbie is a $3 billion global brand. It's bigger than, you know, almost any other toy company out there just by itself, and they've really nurtured that brand and really, really focused on it. They've got an extraordinary team of people driving that brand who really are wonderful visionaries, so they've really focused on that.

Secondarily would be Hot Wheels, and they've really been a good couple of years for Hot Wheels, And I think that's going to continue. You're listening to Motley Fool Money, talking with Chris Byrne, toy expert and the toy guy. We are going to wrap up, as we always do, with a round of Buy, Sell, or Hold. It is the latest version of this doll to create a controversy. Buy, Sell, or Hold Tattooed Barbie. Well, it's Tokidoki Barbie. And I definitely say buy it because people are selling it on eBay for $500.

No. Oh, yes. And it is a collectible. This was never designed to be for the core Barbie player of four to six who would much rather see something covered in glitter than covered in tattoos. So it's a real collector doll. And while the headlines are out there, I would definitely buy it because you'll get a very strong return on your investment if you can find it.

You don't hear much about these anymore. Buy, sell, or hold Ant Farms. Definitely buy. They have a brand new one out called Ant Farm Revolution. I have it on my desk. It's awesome. It's a cylinder of gel. and the ants go nuts digging in it

and then it's got a light on the bottom that you can project images of the ants onto your ceiling. It's totally awesome. Ant Farm Revolution sounds like a horror movie. It sounds like the insect uprising. No, no, it's really, you know, well, they've occupied my desk.

Let's just put it that way. It's really clever and everybody comes into my office and they sit there and they just look at the ants. I mean, it's really outrageous. We touched on this earlier. This is an action movie coming out next summer. Buy, sell, or hold Battleship the movie?

Definitely hold. I think it's going to be a very strong entertainment. What I've seen of it, what they've shown us, looks like a classic sort of entertainment action movie. Not sure how it's going to translate into toys. Certainly the game, there's a lot of good stuff with the game, but they had sort of a major misstep this year with the Battleship Live and the Monopoly Live that didn't really go anywhere. So I want to wait and see what they're going to do in terms of gameplay for 2012.

And finally, this is a real-life phenomenon involving grown-ups who are fans of the animated show My Little Pony. Buy, sell, or hold bronies. Sell and run as fast as you can. No, I'm kidding. These are adult men. We are trying to quantify how many of them there are, like 45,000 that we can sort of track. These are adult guys who are into My Little Pony. Whenever we on the website do a review and we mention that My Little Pony is for girls,

God help us, we get all kinds of mail for people. These are guys who love it. I mean, it's kind of the flip side of being into G.I. Joe or collecting Star Wars. There's just a whole group of guys out there who call themselves the bronies who are into all things pony. You've got to love it. And since Hasbro is the company that owns My Little Pony, scale of 1 to 10, how happy do you think the folks at Hasbro are about this phenomenon? You know, it depends. I think I'd have to give you a Zagatz guide. It's a 10 for brand awareness. It's maybe a 4 for the passion which they bring to it because they do inundate Hasbro with all kinds of questions and queries and requests and suggestions.

So it's a little bit of a management. But I think anybody who loves a toy and is really passionate about it, I think it's a wonderful thing. And so I'm sure they're very happy to have people loving their products. Chris Byrne is an expert on the toy industry. He's the director of content for Time to Play magazine, and you can check him out on Twitter. He is the toy guy. Chris Byrne, thanks so much for being here. My pleasure.

Wow. My Little Pony. Just wow. That's it for this edition of Motley Fool Money. For more coverage and video highlights, check out fooltv.com. You get highlights from Motley Fool Money and from our daily podcast, Market Foolery. You can check it out at fooltv.com. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.