Things have been rough for toy maker Mattel (Nasdaq: MAT), with revenue, earnings and profit margins shrinking in recent years and the stock plunging, too. Slumping sales of key brands, such as Barbie and Fisher-Price, have plagued Mattel, and a new CEO is in place to attempt to right the ship.
Mattel’s problems run much deeper than its brands being out of style, though. The culture at Mattel is said to be a mess, with meetings and bureaucracy reportedly hindering necessary creative work. These issues will need to be fixed before any turnaround can take place, but Mattel offers promise.
While the toy industry is fickle and the hot toy of today is the forgotten toy of tomorrow, Mattel has a portfolio of brands that have been around for decades, including Barbie, Hot Wheels, American Girl, Mega Bloks and Fisher-Price. These brands have stood the test of time, and the company has the resources to turn things around – eventually.
While investors wait for Mattel to return to growth – in part via cost-cutting and innovation – they can collect a massive dividend, which recently yielded a hefty 6.7 percent. There’s a risk that Mattel will reduce the dividend if things get worse, so that shouldn’t be your only reason for buying the stock. But for believers willing to wait a few years, Mattel offers a compelling opportunity.
Ask the Fool
Q: Should a company’s reverse split worry me? – R.S., Larkfield-Wikiup, California
A: It’s at least a red flag. A healthy and growing company will occasionally execute a reverse split, but it’s mainly enterprises in trouble that do so, to prop up their very low stock prices.
Imagine a stock trading at $3 per share. If you own 200 shares and the company executes a 1-for-10 reverse split, you’ll end up with 20 shares, priced around $30 each. Note that before and after the split – just as with regular stock splits – the value of your shares is the same: $600. All that happened is that the company increased its stock price by decreasing its number of shares.
Some reverse splits happen so companies can avoid being delisted from stock exchanges with required minimum price levels. Many mutual funds aren’t allowed to own stocks with share prices below $5, so a reverse split can help there, too.
It’s often smaller, less well-known firms that execute reverse splits, but here are some rather sizable companies that have done so: Citigroup, AIG, AT&T, 7-Eleven and Priceline. If a company you’re interested in plans a reverse split, there’s a good chance it’s in trouble, and you should learn more to decide whether you want to hang on.
Also, if you see that a beleaguered company is suddenly trading at a higher price, that may signal a reverse split and not an operational turnaround.
Q: How does using an online brokerage work – do I deposit money into my account just by mailing in checks? – J.J., Jamestown, Indiana
A: That’s one way to do it. You can also use direct deposit or electronic transfers. Learn more about brokerages and how to choose one at broker.fool.com.
My dumbest investment
Selling Apple in the 1980s was one of my dumbest moves. Dumber still was selling it because I did not want to own Apple stock anymore and then putting the funds into a mutual fund that held Apple stock. It was all dumb because I did not understand what I was doing. I don’t even want to calculate what I would have had if I had not sold. – A.B., Rochester, Minnesota
The Fool responds: Having sold their Apple stock is a mistake that many, many investors have made. But think back to the mid-1980s. You couldn’t know then what a juggernaut Apple would become, and how it would invent whole new product categories.
In fact, in the 1980s, Apple wasn’t a clear long-term winner. Apple did introduce its successful Macintosh computer in 1984, but that was a year after its $10,000 Lisa computer debuted – and flopped. For many years, Apple products held a small market share relative to PCs.
It wasn’t until Steve Jobs returned to his company in 2000 after an exile, and Apple started launching offerings such as the iPod, iTunes store, iPhone and so on, that the company was looking very much like a winner. Today, iPhones generate most of its revenue.
Your mutual fund observation is a good one, too. Few people look into exactly what their funds have been holding. Holdings change over time, but it’s worth checking, lest you end up surprised.
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