Toys Are Staples, Making Mattel a Buy in a Recession, Says Analyst

Shares of

Mattel

rose this past Monday, but fell for the week, after an upgrade from

Goldman Sachs

analyst Michael Ng, who argued that the toy maker had the ability to navigate economic uncertainties. Ng upgraded Mattel to Buy from Neutral, while adding $1 to his price target, to $31.

Ng wrote that while retail and consumer names have sold off on worries of weakening demand, “Mattel stands out in benefiting from several company-specific demand drivers in TV and film-content releases, the returning Disney Princess toy license in 2023, and new product innovation.” Ng estimates that products tied to the Jurassic World franchise brought in as much as $300 million last year, remarkable given that the most recent Jurassic movie was then three years old. Mattel has a number of new catalysts, from the new Barbie movie to Top Gun: Maverick.

Give some credit to toys. “Toys have staple-like qualities,” he writes, which allow them to outperform in a recession. With inflation high and recession fears widespread, the

Consumer Staples Select Sector SPDR
exchange-traded fund has outperformed the broader market in 2022, down less than 6%, compared with a nearly 19% drop in the S&P 500 and a nearly 30% decline in the

Consumer Discretionary Select Sector SPDR
ETF.

Ng isn’t alone.

Stifel
’s
Drew Crum says that while toys may not be “recession proof,” they are resilient. For all recession years since the mid-1970s, “there was not a single year in which both

Hasbro

and Mattel experienced year-over-year sales declines,” he says. (For more on Mattel, see Mattel Isn’t Playing Around. The Stock Is Well-Positioned to Prosper in a Recession..) Both companies posted year-over-year increases in seven of nine recession years.

Next Week

Monday 7/18

Bank of America
,

Charles Schwab
,
Goldman Sachs Group,

IBM
,
and

Prologis

report earnings.

The National Association of Home Builders releases its Housing Market Index for July. Consensus estimate is for a 64 reading, three points fewer than the June figure, a two-year low.

Tuesday 7/19

Citizens Financial Group
,

Halliburton
,

Hasbro
,

J.B. Hunt Transport Services
,

Johnson & Johnson
,

Lockheed Martin
,

Netflix
,

Novartis
,

Omnicom Group
,
and

Truist Financial

announce quarterly results.

The Census Bureau reports new residential construction statistics for June. Economists forecast a seasonally adjusted annual rate of 1.58 million privately owned housing starts, 1.7% higher than in May. Starts have fallen sharply this year and are at their lowest levels since April of last year.

Wednesday 7/20

Abbott Laboratories
,

ASML Holding
,

Baker Hughes
,

Biogen
,

Crown Castle International
,

CSX
,

Discover Financial Services
,

Elevance Health
,

Kinder Morgan
,
Nasdaq,

Tesla
,
and

United Airlines Holdings

release earnings.

The National Association of Realtors reports existing-home sales for June. Expectations are for existing-home sales to decline 0.7% to a seasonally adjusted annual rate of 5.37 million. Existing-home sales have declined for four consecutive months.

Thursday 7/21

The European Central Bank announces its monetary-policy decision. ECB President Christine Lagarde said that it intends to raise the key interest rate by 25 basis points from negative 0.5% to negative 0.25%.

American Airlines Group
,

AT&T
,
Blackstone,

Capital One Financial
,

D.R. Horton
,
Danaher, Dow,

Freeport-McMoRan
,

Intuitive Surgical
,

Marsh McLennan
,

Nucor
,

Philip Morris International
,
SAP, Snap, Travelers, and

Union Pacific

hold conference calls to discuss quarterly results.

The Bank of Japan announces its monetary-policy decision. The central bank is expected to keep interest rates unchanged at negative 0.1%. The yen recently hit a 24-year low against the dollar, as the

BOJ

and Federal Open Market Committee have taken divergent paths regarding interest rates.

The Conference Board releases its Leading Economic Index for June. Consensus estimate is for a 0.4% month-over-month decline, matching May’s drop.

Friday 7/22

Twitter
,
and Verizon Communications report earnings.

S&P Global releases both its Manufacturing and Services Purchasing Managers’ Indexes for July. Expectations are for a 51.5 reading for the Manufacturing PMI and a 53 for the Services PMI. Both indexes registered a 52.7 reading in June.

Write to Teresa Rivas at [email protected]

Source: https://www.barrons.com/articles/toys-are-staples-making-mattel-a-buy-in-a-recession-says-analyst-51657931252?siteid=yhoof2&yptr=yahoo