Mattel, Inc. (MAT), Hasbro, Inc. (HAS), The Walt Disney Company (DIS): Are These Stocks Worth Playing With?

In a recent article, I couldn’t help but harp on the move to digital and how it’s impacting the video game industry. This move is not only changing how the likes of Electronic Arts and Activision Blizzard do business, but also how the physical toy industry operates.

As I develop my thesis on the industry, it’s clear that companies may well continue to see pressure related to the generational shift away from physical toys to the digital world. Thus, the current toy industry will rely heavily on innovation.

However, for investors looking to play the industry, the top pick is Mattel, Inc. (NASDAQ:MAT). The company owns 20% of the U.S. toy market share, making it the leader. The other nice thing about Mattel, Inc. (NASDAQ:MAT) is its international exposure, the company gets around 45% of revenue from it international segment.

Mattel, Inc. (NASDAQ:MAT)’s key brands include include Barbie dolls, Fisher-Price toys, American Girl dolls and books, and Hot Wheels. Sales are expected to be up 4.7% in 2013, thanks in part to renewed interest by consumers in its Fisher Price brand.

Brazil has become the second-largest market for Mattel, Inc. (NASDAQ:MAT), by sales, and the toy company also has its sights set on China. Revenue from international sales advanced 9% during 1Q; and the company hopes to generate over 60% of sales from overseas in the long term.

Number-two toy maker

Hasbro, Inc. (NASDAQ:HAS) is the other major toy company, with brands that include Transformers, Playskool, Monopoly and My Little Pony. The company gets nearly 40% from boys’ toys, including sports-related and action figures. Its other key categories include games and puzzles (30% of revenue), girls’ toys (19%) and preschool toys (13%). The company’s top customers include Wal-Mart, Target and Toys ‘R Us, accounting for 38% of 2012 revenue collectively.

Hoping to address the move to digital, Hasbro, Inc. (NASDAQ:HAS) is looking to put more concentration on entertainment products. The company has a 50% interest in a joint venture with Discovery called the The Hub. Hasbro, Inc. (NASDAQ:HAS) is also has a several-year agreement with Electronic Arts.

The unexpected

The Walt Disney Company (NYSE:DIS), despite being considered a major media company, is also a big competitor for the toy companies. Consumer products only account for 8% of revenue, and includes licensing and manufacturing various products based on The Walt Disney Company (NYSE:DIS) characters and other intellectual property.

Yet, it’s the media segment that continues to drive The Walt Disney Company (NYSE:DIS). And with its size, the company can easily tap international markets. Of its most notable international properties is the Shanghai Disney Resort and Shanghai Disneyland in China.