I really focused on the banks last week, and after reading all the reports this weekend from the St. Louis Fed's Community Banking in the 21st Century conference, I am sure we will talk about the community banks a bit more this week as well. It really is the trade of the decade and even the shortest-term of traders should be pushing some of their money into a portfolio of these little gems.
However, over the weekend I also read some of the notes around the Web on the Sohn Canada Capitalize for Kids conference. While the New York conference in the spring gets a lot more coverage, there were some great speakers and ideas in Toronto last week as well. Several of them are worth reviewing, so before we go back to banks, I wanted to review them today.
Howard Marks of Oaktree is always a great speaker and worth listening to for a solid view of the markets. The most interesting comment he made during his talk was that today is absolutely not a good time to be a distressed debt investor. While the increasing presence of large legal teams and sneaky accountants along with the addition of giant hedge funds have pretty much pushed me out of the distressed debt market, I take notice of this remark because the best times for distressed debt investors are also usually the best times to be buying stocks.
My last hurrah in distressed debt was 2000-03, and as I recall it was a great time to be buying stocks as well. By 2008, distressed debt had become an "asset class" of its own and tens of billions of dollars had entered the space. Guys like me with a calculator, pencil and legal pad were pretty much out of the game, but that was also a great time to buy distressed debt and stocks. The fact that one of the best distressed debt investors is having a hard time finding bargains reaffirms my suspicion that this is not a great time to be an aggressive buyer of stocks.
David Zorub of Blue Mountain Capital also had a fantastic presentation. Zorub runs the long/short equity manager at the alternative asset forum and he suggested shorting Mattel (MAT). I have an acquaintance who is wildly bullish on the toymaker, and I confess that I have circled the stock several times. It is an iconic brand and the dividend is very attractive. I have read some bullish analyst reports and just have not been able to pull the trigger on the buy side. After reading the presentation, I am glad I didn't.
Zorub pointed out that Mattel is seeing sales declines and margin compression. Barbie, Monster High and Hot Wheels just are not the hit they used to be, it seems. Barbie in particular seems to be struggling in the online world. I made a few calls to folks I know with young daughters last weekend, and while Barbie is still in play, more of kids' attention is in the online world and Barbie has not translated well.
I do not even know what Monster High is, but I do confess a certain sadness that online racing games are replacing Hot Wheels. I used to build tracks that took up a good percentage of the house when I was a kid and spent hours racing those things. I had hundreds of the cars and the portion of my meager allowance that did not go to comic books went to new Hot Wheels cars.
The above paragraph is exactly the mistake I think that Mattel bulls are making. They are anchoring the toy company to their own childhood and not the kids of today. It is a whole different world and Mattel's reliance on the Old World toys has hurt the company badly. The only thing keeping Mattel from cratering entirely is the Disney (DIS) products, especially from the movie Frozen. That is a huge problem for Mattel as the Disney license goes to Hasbro (HAS) in 2016 and it has nothing to replace it. Hasbro also has the Star Wars and Marvel licenses, so unless Mattel catches some new hot brand, it will struggle to compete.
Mattel has some great lines like American Girl and Fischer Price, but that's not enough to drive sales growth. The dividend at 7.6% is tempting and the company has committed to maintaining the payout, but I am not sure that's realistic. In fact, a dividend cut may signal that management has realized they need to conserve cash and remake the company and finally be a buy. For now, I am going to continue to avid the stock after reviewing Zorub's excellent presentation.
The fall is conference time, and I will attend a few and try to get coverage on the others so we can stay on top of what some of the best minds in the business think about markets today.