Despite Mattel Recall, I Remain Bullish

Go to leading toy designer, manufacturer and marketer Mattel Inc.'s (MAT) website, and you're greeted with its slogan in bold letters: "The World's Mattel: Premier Toy Brands, Today and Tomorrow." With popular name brand toys ranging from Barbie and Hot Wheels to American Girl and Barney, that claim is no exaggeration.

But the behemoth brand has taken a hit this past week. If you've been reading headlines, you likely have seen the bad news for Mattel -- it is recalling 1.5 million of its Fisher-Price toys due to lead paint concerns. With this, Mattel joins a long list of big businesses being burnt by shoddy manufacturing and factory oversight problems in China.

Certainly, it isn't just a case of tainted toys, but now a tainted brand. If you're a parent, you pay special notice to news like this, and it is not something you take lightly. As a parent myself, I know that with everything involving my child, I err on the side of safety and caution. Mattel knows this, and it has announced that it is immediately addressing the problem and will go overboard to ensure it doesn't happen again, but I still might think twice when I am at the toy store next time.

But as an investor, I am thinking differently. As to be expected, Mattel took a hit on the market after news was released. However, I think this brand is far too big to be taken down by a one-time recall. Yes, we'll likely see a hit in sales in the short term, but I remain bullish on this stock. I think that its dip in price makes it a good value pick right now. In a recent report, BMO Capital Markets analyst Gerrick L. Johnson lowered the 2007 EPS estimates for Mattel from $1.55 to $1.45, as a reaction to the recall, but kept a $25 price target. I am with him on his EPS estimate and think Mattel can return to its 52-week highs.

Type of Stock: A leading toy manufacturer that has been hit by a major recall following the use of lead paint on a variety of Fisher Price brand toys manufactured in China.

Price Target: Trading at $22.67, well below its 52-week high of near $30, I think it is a good time to pick this up. The recall that will affect Mattel in the short term will not hurt it in the long term, and so you'll likely want to hang onto Mattel for a few years.

MAT 1-yr chart: