The Must Read Christmas Toys List for Investors (MAT) (HAS) (LF)

With headlines of Black Friday sales fading into chatter about Cyber Monday, a few investors are hunting toy stores searching for the breakout holiday gift. If you are one of those investors, brace yourself for bad news because, hate to break it to you, but it isn't going to happen, and you are frankly barking up the wrong tree.

While hot toys make great general topic news articles, on the whole they are not good investment opportunities. Sean McGowan, an equity analyst with Needham and Company put it this way:

"A toy that is 'red hot' isn't really a big seller, since what makes it 'hot' is the fact that consumers can't buy it, not that they’re buying a lot of it."

In a research note today, McGowan pointed out a number of so-called hot toys this year. Some are worth nothing. Others, viewed in the right light, could add value to an investor's portfolio.

Hot Toys

McGowan says this year's top selling toys are expected to included Nintendo's Wii U, MGA's Lalaloopsy doll, Mattel's Monster High playset (Nasdaq: MAT), and Hasbro's (Nasdaq: HAS) Furby.

Other toys this year include Lego's Ninjago and Friends, Doc McStuffins, LeapPad2 (NYSE: LF), and Skylanders Giants, which is part of Activision's (Nasdaq: ATVI) franchise. Tablets in general and Playmates Teenage Mutant Ninja Turtles also make the list.

Stocks

Hasbro (NASDAQ: HAS)

While Furby sales look good, the news on other fronts is less encouraging for Hasbro, thinks McGowan.

"Board Game sales, which, according to NPD were down over 15% at retail through September appear to have improved in October and November, but not as much as hoped,” said the analyst, adding that sales among some other Hasbro toys are mixed.

Jakks Pacific (NASDAQ: JAKK)

Another stock with exposure to toy sales is Jakks Pacific, which sells a number of popular toys including Hello Kitty and Disney Princess, but this is a stock you may prefer to avoid as Needham and Company channel checks have shown "nothing in retail sales movement that offers much encouragement for JAKK’s 4Q results".

LeapFrog (NYSE: LF)

As noted above, LeapFrog's second generation pad will be a top selling toy this year. How much this can help the stock isn't clear, however, and analyst think investors may take a wait and see attitude until more visibility into 2013 is seen.

Mattel (NASDAQ: MAT)

Finally Mattel, with its lineup of Barbies and its popular Monster High playset and Matchbox cars, looks like it is well positioned.

"Overall, we believe that sales of MAT's products are holding up better than most in the US, and that sales outside the US give the company the potential to post positive surprises in 4Q results," said McGowan.

The bottom line is that trading 'Hot Toys' is anything but child's play, and those investors hoping to buy stock in the next Tickle Me Elmo doll or some other similar blockbuster toy might be living in a fantasy world.

Then again, if by some miracle you find one, feel free to forward the details and this article will be updated promptly.

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