LeapFrog Stock Should Rise On Christmas Buying

We bought LeapFrog Enterprises (LF) shares in March and said we would hold them at least until Christmas, no matter what they did. It is looking more and more like we may have winner here.

In the original post, I said "I have seen the new LeapFrog products and they are great. They are usable by my 4 year olds and are educational, not just entertaining. The quality is outstanding, meaning they would have to work at breaking them and they are affordable. A Leapster Learning Game System in Target runs about $60 and the games are about $15-$25 a piece. Best of all, the kids really love them and they are learning (to read and write, not blow things up, it's the little things)."

In a follow up in August I said "As I have said before, this Christmas is make or break and LF is such a small part of the portfolio, we will wait and see what happens. The new products are very good and early reviews have been overwhelmingly positive."

So, where am I going? Toys R Us released their "Fabulous 15" must have toys for Christmas this year and guess who made the list? You got it...

Here it is:

* Aqua Dots Super Studio from Spin Master

* Clickstart My First Computer from LeapFrog

* Daisy Pocket Mod from Razo

* EyeClops from Jakks Pacific

* GeoTrax Rail & Road System from Mattel's Fisher-Price

* Grand Walk-In Kitchen from Step 2

* Guitar Hero 3: Legends of Rock Game from Activision

* Hannah Montana In Concert Collection Doll from Play Along

* Made for Me MP3 Music Player from Hasbro's Playskool

* Monopoly: Boutique Edition from Hasbro

* Shining Stars from Russ Berrie & Co

* T.M.X. Friends from Mattel's Fisher-Price

* Transformers Ultimate Bumblebee from Hasbro

* XPV R.A.D. Robotic Air Defense from Jakks Pacific

* Smart Cycle from Mattel's Fisher-Price.

Number two on the list. Here is the deal. Is anyone going to buy any toys from Mattel (MAT) this year given the recent problems they have had? If the answer is no, you eliminate 20% of the list. Not for nothing, but I would rather not have my Christmas present to my sons cause them brain damage - that is just me.

This computer game is going to be huge for Leapfrog and with only 65 million shares outstanding, a good Christmas season has the potential to catapult earnings.

Currently shares are trading around $8.25 a share and that price, why not? If you need to have a little "action" in your portfolio for excitement, why not take some? Keep the position small in case things do not turn out as hoped and if it does, the upside potential is big.

Think about it, quality products that teach your kids something that they'll enjoy and won't kill them. What's not to like?

Disclosure: Author is long LF

Comments

[RPK]

If you bought in March you most likely paid between $10 and $10.50 per share. LF closed at $9.23 today and hit a low of $6.80 at the end of August and early September. I would characterize it as Mr. Toad's Wild Ride rather than a winner. Of course your thesis may prove correct and LF may exceed estimates this holiday season.