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Jakks Pacific (JAKK) Returns +23% in under 4
Months
Published:
April 14, 2008
In
every issue of my
Half-Priced Stocks newsletter, I zero in on some of
the market's biggest bargains. Quite often, there is nothing
fundamentally wrong with these companies, they were simply
ambushed by a "sell first and ask questions later" mentality.
And when investors realize that they may have overreacted, the
shares often recoup their losses -- providing hefty gains for
those with the courage to buy when everyone else seems to be
running away.
That's what led me to Jakks Pacific (Nasdaq: JAKK, $28.72) this
past January. My "Industry Spotlight" segment that month covered
toy makers, an industry that had been widely disparaged
following a series of highly-publicized (and costly) recalls
stemming from faulty products sourced from China. Traders were
also worried that rising costs for resin (an oil-based material
commonly used to make plastic toys) could cut into earnings.
However, while those concerns were valid, they were also
overblown and temporary. Yet, in the span of a few months they
shaved nearly one-third of the value from Mattel (NYSE: MAT),
the company that initiated the recalls, and erased billions of
dollars in market capitalization industry-wide. As for Jakks,
its shares tumbled like a slinky going down a flight of stairs,
falling from a peak above $30 to a bottom below $20.
At the time, I didn't see these issues as a major threat to
either Jakks Pacific or the overall $22 billion toy business. In
fact, based on licensing ties to popular franchises like
Hannah Montana, Pokemon and Dragon Ball Z and
my upbeat outlook for the firm's future cash flows, I calculated
a fair value of $29 per share -- about +23% above where the
stock was trading at the time.
Since then (thanks in part to a blowout fourth quarter that saw
revenues advance +20% and profits surge nearly +50%), the shares
have rallied sharply, finishing this past week at $28.72, a
shade below my
fair value estimate. Meanwhile, the broader market has spent the same
time period in negative territory.
In this month's newsletter, I zoom in on another company that
has been unfairly punished because of temporary fears. My
"Undervalued Stock of the Month" for April is a leading power
producer in China, a nation with an insatiable appetite for
electricity. Yet, despite cozy ties to the Chinese government
and steady double-digit cash flow growth, rising coal prices
have slashed the stock in half in recent months. As a result,
this well-placed firm now offers a yield of 6% and upside
appreciation potential of more than +50%.
To read my complete profile of this exciting firm -- available
only to subscribers -- I invite you to join us at
Half-Priced Stocks. To learn more, please
visit
this link.
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Nathan Slaughter
StreetAuthority Staff Writer
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Income Security
of the Month
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