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Harry Koza

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Want to tinker in toys?

Harry Koza


"As men get older, the toys get more expensive," Marvin Davis, explaining why he bought the Oakland Athletics in 1979.

TORONTO (GlobeinvestorGOLD) - According to the Marvin Davis theory quoted above, at my age, I should be into toys like plasma TV's and Ferraris, but the way I look at it, in the first instance, why spend five grand for a TV set when there's nothing on anyway, and in the second, why on earth would I want a car that costs five grand to get the oil changed? (I don't have any, er, inadequacies to compensate for either). Still, there are a lot of great toys out there in the market this year.

I have a couple of new favourites. I particularly like the SharkJaw Toys radio-controlled airplanes (www.iwatoy.com) - they're way cool. Their website has a neat demo video that's worth a look. I am also inordinately fond of the vapour toroid (smoke ring) emitting devices made by Zero Toys (www.zerotoys.com). They remind me of smoke ring cannons I used to make when I was a kid, in my mad scientist phase. I used to make them out of coffee cans, and the smoke ring could snuff a candle from ten feet away with an audible snap. Make one out of an oil drum and you can knock a man down from thirty feet away. Zero makes one that can knock your hat off from 20 feet away. They use a harmless water-based vapour, not real smoke. Very geek-chic, and I want one real bad.

Alas, both Zero Toys and Sharkjaw Toys appear to be privately held companies, and you can't buy their stock. Still, the toy biz is big biz, and if you want to put some money in the toy business, you could do worse than Hasbro.

The toy business, for all that it concerns, well, toys, is notoriously cut-throat and competitive. One Christmas you can be coining it huge with the toy that parents are fighting over in the aisles at Toys 'R Us, and the next year, you're in Chapter 11. Hasbro, on the other hand, has been around forever.

The name stands for the Hassenfeld Brothers, Henry and Hillel, a couple of Polish Jewish immigrants in Rhode Island. They got their start in 1935, selling fabric remnants, some of which they used to cover pencil boxes and to make pencil cases, which they then filled with rulers and protractors and compasses and pencils and erasers and sold to school kids. When their pencil suppliers raised the price, the brothers started making their own pencils (Eventually, their Empire Pencil Company became the biggest pencil maker in the US). Then one day in the 1940s, Henry's son Merrill had a brainwave. The school supplies business was pretty seasonal - come October, it was all but over for the year. Merrill thought; why not start making toys to fill in the off-season. Initially, they made crayons, paint sets, doctor and nurse kits (remember those?).

Inspired by World War II, they branched out into air-raid warden kits with little fake gas masks and flashlights. This introduction to militaria was to stand them in good stead. In 1964, they launched GI Joe. Within two years they had sold more than 8 million Joes, not to mention a gazillion accessories. The Vietnam War was starting to draw a lot of bad press by then, and the anti-war protests spilled over into Toyland, and started to hurt GI Joe sales.

Not to worry, though, GI Joe morphed into an "Action Figure" and spawned a whole industry. In 1976, Hasbro scrapped Joe, but resurrected him again in 1976 as a terrorist fighter after the Iranian hostage crisis. In 1988, they sold $200-million (all figures U.S.) worth of Joe and his gear, and by then there were over 200 million Joes out there. Take that, Barbie.

After Merrill retired in the 70's and his two sons took over, there were some problems, a few face-plants. Critics started calling Hasbro "Hasbeen." But in the 80's, after an internecine feud in which the two boys fought off their Uncle Harold for control, ultimately spinning off the pencil division that Harold ran, Alan and Stephen Hassenfeld hit their stride. First they scored with My Little Pony, followed fast by Transformers. And they had the classics: GI Joe, Mr. Potato Head, Tinkertoy (still the absolute best construction toy ever. Ok, Meccano is better, but it costs a bloody fortune). When competitors blew up, the Hassenfelds picked up the pieces, acquiring Knickerbocker Toy (Raggedy Ann dolls) and Glencoe Infants (baby bibs) in 1983, Milton Bradley (Playskool, board games, Lincoln Logs) in 1984, and Child Guidance (Busy Fire Truck, Sesame Street Toys) in 1984. In 1989, after Coleco Industries went bankrupt, Hasbro bought them, nabbing Cabbage Patch dolls, Parcheesi and Scrabble.

Today their brands also include Play Doh, Monopoly, Magic: The Gathering playing cards, Wizards of the Coast, Tonka Trucks, Easy-Bake Ovens, Super Soakers, Clue, and many others. In September of this year, Hasbro acquired Wrebbit, the Montreal-based manufacturer of those 3-D jigsaw puzzles.

Hasbro is listed on the NYSE (Symbol: HAS) and trades currently in the $20 range. The 52-week high is $22.25, the low $17.72. In the 12 months ended Sept 30, 2005, it earned $199.93-million on $3.076-billion in sales. In 2004 it paid a dividend of $1.08 a share. According to Globeinvestorgold.com, it is rated a hold by 11 analysts.

A week or so back, Hasbro announced a new distribution deal between its Tiger Electronics arm, Nickolodeon (SpongeBob Squarepants) and the Cartoon Network. The two broadcasters will provide content for Tiger's new Vugo multimedia player for kids. The Vugo comes with 128 MB of memory (expandable) and can hold sixty minutes of video, six hours of music, or 1,200 digital photos. It can download from a computer, or record from a TV, and kids can mix, mash and edit their favourite 'toons or tunes and play them on its 7.62 centimetre screen. Fortunately for parents, it comes with headphones.

The Vugo sells for $119.00 and is available in stores now. I haven't seen one yet, and I don't know if it will be the big must-have item that parents will be wrestling in the aisles for this year, so I'm not making any bold predictions about the success of the product this year. But if you have small children, go look in your kids rooms, and count the number of Hasbro products you have in your house. Surprising, ain't it?

It's a well-run (Alan Hassenfeld is still Chairman) company that has been around for a long time. They've been very successful in a very tough business for decades. Chances are they're going to be with us for a long time yet. If you want to cash in on the toy market, instead of just throwing cash into the toy market like most people do, Hasbro is a good choice.

I think I might buy some, and then buy Tinker Toy for all the kids on my list (including myself).

Harry Koza is Senior Analyst in Canadian markets for Thomson Financial/IFR. At various times in his career, Mr. Koza has been a prospector, metallurgist, project manager, engineer, as well as an institutional bond salesman for 15 years. His current area of expertise is in high-yield distressed securities and corporate bonds in general.

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