When you’re a kid, nothing beats a new toy under the tree on Christmas morning.
That doesn’t mean, however, that Mom and Dad can’t stuff the stocking with a gift that will still be worth something by the time the holiday dinner hits the table.
There are a number of investments that just seem to jump out as naturals for kids. Unlike boring bonds or stodgy, old-line stocks, these equities and mutual funds investments offer something that children can appreciate. And picking them out can be more fun than a weekend trip to the shopping mall.
First, consider investment strategy. Market strategists have long professed the “buy what you know” approach. Kids know toys, and toys are good business these days.
The toy business should see a “jolly 10 to 15 percent increase” in sales this year, estimates Jill Krutick, a leisure products analyst at New York-based Salomon Brothers Inc.
Perennial powers such as Hasbro and Mattel should boast strong performances this year, Krutick says. She rates both companies as “excellent long-term investments.”
Shares of Mattel (around $29, New York Stock Exchange) could grow to about $34 in 1994 as a result of growth that will follow a recent merger with Fisher-Price, says Krutick, whose own 1994 estimate of Mattel stock was just $2.05 a share, or nearly 14 times what it’s actually trading for.
Mattel will lend its distribution channels and marketing muscle to Fisher-Price’s pre-school toys. In turn, Mattel will decrease its reliance on Barbie, who represented nearly 50 percent of sales previous to the merger. Barbie will still account for about 40 percent of sales for the new entity, Krutick says.
The Mattel-Fisher merger should provide some competition for the dominant toy power, Hasbro Inc. (around $38, American Stock Exchange). This year, Hasbro will try to lure savvy holiday shoppers with its top-selling board games, a talking Barney and Jurassic Park action figures.
With no single product accounting for more than 5 percent of sales and 80 percent of all products priced at less than $20, Hasbro is positioned to weather competition and cost-conscious consumers, Krutick says.
Hasbro trades at 14 times Krutick’s 1994 estimate of $2.70 per share.
The video-game business also represents an investment opportunity that most kids can understand. One of the hottest: Acclaim Entertainment (around $22, NASDAQ), makers of Sega and Nintendo games such as the much-publicized, and somewhat controversial, Mortal Kombat game.
Mortal Kombat, which represents about half of Acclaim’s sales right now, could end up shipping more than 5 million units in its first 12 months on the market.
“That would classify it as a blockbuster,” says Mike Wallace, a software analyst at UBS Securities.
With new games such as NBA Jam (due in March) and forays into CD-ROM and coin-operated games, Acclaim could boost sales to $400 million by the end of its fiscal year in August. Acclaim trades at 26 times Wallace’s 1994 estimate of 85 cents a share.
If buying into companies that keep the kids indoors isn’t your style, you might check into a company such as Swing-N-Slide (about $13, NASDAQ), a Janesville, Wis.-based company that makes plastic and metal accessories for back-yard playground equipment.
The company’s products (swings, slides and construction plans; you buy the lumber separately) are marketed primarily through home-improvement centers.
Midwestern floods and a sharp upswing in lumber prices cut into Swing-N-Slide’s 1993 summer sales, and the stock price slid by more than 40 percent. At $13, the stock trades at just 13 times Krutick’s 1994 earnings estimate of $1.03 per share.
Kids also love collectibles. For some kids, in fact, trading baseball cards and comic books are the junior-high edition of the stock market. Teaching them how to swap stocks may just be a natural extension.
A couple of comic book publishers-Marvel and Harvey-give new meaning to market guru Peter Lynch’s oft-quoted investing axiom: “Never invest in any idea you can’t illustrate with a crayon.”
Harvey Comics Entertainment (around $9, over the counter), which owns Casper the Friendly Ghost, was brought back from near dead in 1988, when a 24-year-old Scott Montgomery purchased the company for $7.5 million in cash and notes.
An initial public offering of stock followed. Since the IPO, Casper and his other label mates such as Richie Rich have been licensed for clothes, movies and other paraphernalia. Harvey recently announced that it would also create 120 comic books under a joint venture with Turner Broadcasting System Inc.’s Turner Publishing unit.
More established than Harvey is Marvel Entertainment (around $30, NYSE), home of Spiderman and others. This year, one of the newest comic book marvels may represent the hidden treasure in the Marvel chest: Toy Biz Inc.’s X-Men action figures, based on the mutated crimefighters from the company’s comic book series. Marvel owns 46 percent of Toy Biz, which should contribute about 6 cents per share to Marvel’s bottom line this year, Krutick says.
For purchasing purposes, parents may wish to buy single shares or a limited number of shares. While most discount brokers charge a minimum commission of about $35, there are a few options.
Some brokerage firms will let brokers negotiate reduced fees with regular customers.
Single shares in more than 100 companies can also be purchased through the National Association of Investors Corp., a Royal Oak, Mich.-based organization for individuals and investment clubs.
An NAIC membership ($32 annually) entitles members to participate in the Low Cost Investment Plan, which offers single-share purchases in several companies that also offer dividend reinvestment plans (DRIPs).
If you’re planning on adding to the kids’ portfolio over time, buying a limited number of shares in a stock with a DRIP probably makes sense. DRIPs allow purchasers to reinvest dividends to buy more shares without having to pay brokerage fees.
Another investment play that can appreciate for kids: mutual funds that invest in “kid type” companies.
Denver-based INVESCO’s Strategic Leisure Fund, for example, invests a large percentage of its assets into companies such as Electronic Arts and Toys “R” Us. What’s more, the fund has been one of the top-performing mutual funds in 1993.
Other mutual fund distributors have started taking steps to make their funds more attractive as gifts. Some fund families, such as Alliance (800-227-4618) and Capstone (800-262-6631), have funds that require minimum initial investments from $50 to $500.
