Barbie, Ken, Harry, and SpongeBob

04/16/2004 12:00 am EST


Jessica Chiaverini

Associate Editor, The Prudent Speculator

"As investors who believe in long-term commitments, we're disturbed that after 43 years together, Barbie and Ken, have decided to spend some time apart. Gasp!" Despite the breakup, Jessica Chiaverini, contributing editor with The Prudent Speculator, continues to recommend Mattel.

"Mattel (MAT NYSE) is in the midst of revamping product lines, launching new toys, and streamlining operations. Barbie as a single girl with a new independent look is just one of the by-products of Mattel's ongoing makeover. The toy maker's transformation is a promising one and particularly appropriate given its weaker than expected 2003 results. Mattel is a worldwide toy manufacturer whose games and toys consist of Hot Wheels, Matchbox, American Girl, Fisher-Price, and a wide array of entertainment-inspired toy lines. The company sells products in more than 150 nations throughout the world generating revenue of approximately $5 billion.

"In addition to the new Barbie line, the Fisher-Price division is getting into the hot educational toy sector. Moreover, Mattel holds licenses for characters in three upcoming movies, namely, Harry Potter, Yu-Gi-Oh!, and SpongeBob SquarePants. Mattel seems to be doing all of the right things to curry favor with investors and get its 'game' back on track. In 2003, the company implemented a $0.40 dividend, paid down a large chunk of debt, and bought back $250 million worth of shares. Its existing stable of brands is top notch and the newer product lines and extensions, if successful, could serve as great revenue catalysts.

"Though Mattel's share price continues to reflect the company's challenges and the harsh competitive landscape, we view the weakness as a buying opportunity. With a 2.2% yield, a p/e of less than 15 and a manageable 39% debt load, we would buy shares of this prominent toy maker up to $19.20. We are also comforted by the fact that, according to Mattel, Barbie and Ken will always remain the best of friends."

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