February 9, 2009

Four Stocks for New Parents

My brother and his wife are expecting their first child this summer. He isn't even here yet and already dozens of people have spent thousands of dollars in preparation for this blessed event. This article uses Peter Lynch's principle of "buying what you know" in order to make stock recommendations for first time parents.

Disney (DIS)

Why You Should Own It: Disney has a vast array of intellectual property backed by a marketing team more powerful than the government of a small country. There is a very high chance that my nephew will be exposed to a Disney product within days of being born. As he grows, he will no doubt receive and consume countless Disney products ranging from toys, books, movies, and trips to theme parks. As a parent, it is only a matter of time before you give The Mouse some of your money. It is best to own shares of the company as soon as possible so that you can maximize your return over the greatest number of years.
Why You Should Buy it Now: The last two quarters have been rough on Disney shares, as earnings have fallen short of analyst expectations. At under $20 a share, the company is trading at six year lows and slightly above book value. Disney also pays a 1.8% dividend, which may grow, though not as fast as a newborn.

Mattel (MAT)

Why You Should Own it:
Much like Disney, Mattel has a wide range of products that appeal to children of all ages. Starting from birth with Fisher Price to kids of all ages with Hot Wheels and Barbie. After our children were born, the decor in our house changed from "country casual" to "modern toddler" as an endless stream of plastic toys painted in primary colors were strewn down the hallway.
Why You Should Buy it Now: The company's last earnings release showed us that toys are not recession proof and as a result, the stock is down 50% from its 52 week high. However, long term investors will realize the value in this company as the demand by children for toys will not wane, just the parent's current ability to buy them. Like Disney, parents all around the world will spend some of their money on Mattel products. Let the company pay you back slowly, over time.

Kimberly-Clark (KMB)

Why You Should Own it:
One word.....diapers. Kimberly Clark of course makes more than Huggies, but your newborn becomes a consumer at birth, and one of the first things that they will consume multiple times on a daily basis are diapers. After the baby stage is over, KMB is ready to usher your toddler into potty training with Pull Ups and Little Swimmer diapers. They will also be there with their Kleenex tissues to wipe noses when they are sick and with their Scott paper towels to wipe up the cereal that was dumped out in the high chair.
Why You Should Buy it Now: Shares are near their 52 week low under $50 a share. The company is faced with rising raw material costs as well as competition in most each of their product lines. However, the company has implemented a cost savings program and has begun to repurchase shares in order to meet their EPS targets. Their historically low stock price coupled with a 4.6% dividend makes a for a compelling blue chip investment idea.

Costco (COST)

Why You Should Own It:
They sell diapers and formula in bulk. The new addition to the family is going to eat and ummm require "undergarment refreshment services"....a lot! While you are at Costco picking up these things for the little one, you may also be prone to picking up a mega-large bag of coffee to help you get through the sleepless nights.
Why You Should Buy It Now: Shares are near their 52 week low and they also pay a dividend. As the family grows, you will be buying more products in larger sizes. "Buy what you know" and get rewarded for your efforts.

Disclosure: Long shares of Disney

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