In our ongoing effort here at BigTrends to bring you ideas you won't get anywhere else, we've dug up a relatively obscure industry that's been surprisingly strong of late. Might there be a potential trade-worthy theme in there. Maybe...let's take a look.

The industry is toys. Technically it's part of the cyclical sector, though in our observation these stocks have tended to march to the beat of their own toy drum. In other words, we don't want to put them into a cyclical pigeon-hole; we want to examine them independently.

The facts are this - the average toymaker stock is up 4.1% since January 22nd (the primary short-term bottom for most groups), and the major names (i.e. bigger market cap stocks) like Hasbro (HAS) and Mattel (MAT) are up even more since then: 11.7% and 14.7% respectively. The S&P 500 is up 3.2% for the same timeframe. That's too big of a disparity to ignore.

Of course, the toy-makers were depressed into long-term lows for several months before that bottom, thanks to a wave of lead-paint-based recalls. Though the manufacturing process is outsourced (usually), the domestic brands themselves usually end up footing the bill for such recalls. Though Hasbro didn't have to issue any recalls, they may have been guilty by association.

Now that all the potential lead-poisoning news is 'out there' and priced-in, perhaps these stocks are on their way to getting back to their previous fair price. If so, the recent run-up may only be the beginning - most of these stocks are anywhere from 10% to 30% under their mid-2007 peaks.

Dow Jones Toy Index, Hasbro (HAS), Mattel (MAT) - Daily


If you're looking for something a little more aggressive, there's a lot of buzz about JAKKS Pacific (JAKK). The chart's a mess (that's not good or bad - just a fact), and JAKK looks like it could go down just as much as it could go up. But, if you're a volatility kind of person, JAKKS could be right up your alley.

Cap & Style
By the way, value is still beating growth in the post-1/22-bottom environment, with plenty of room to catch up after growth beat the daylights out of value last year. In fact, small cap growth has basically dropped out of the rebound effort. It's a bit odd too, since large and mid-cap growth have actually been slightly stronger performers in just the last three weeks. We think value still has the edge in the foreseeable future, but small cap growth is emerging as a significant liability.

Price Headley is the founder and chief analyst of BigTrends.com.