Star Wars: as the Force Awakens, Buy Disney, Lego toys; Sell Hasbro

star wars awakens toys
Disney Star Wars The Force Awakens Kylo Ren 14 1/2″ Talking Action Figure

The much anticipated release of Star Wars VII: The Force Awakens has arrived. Retailers from Wal-Mart (WMT) and Toys R Us, to Barnes and Noble (BKS) and Best Buy are featuring waves of first-release branded merchandise. For investors, there is major upside potential to gain from the hype, release of, and sales related to Star Wars. This is especially true for those looking to invest in Star Wars toys. If that sounds crazy to you, think again. Buying Star Wars toys won’t make you force-sensitive, but it can generate large profits.

 

Toys as an Investment

Swings in stock prices, uncertainty on the bond-yield front, and competing currency rates have pushed many investors into non-stock holdings: art, antique furniture, bullion, vintage jewelry, and toys. Yes, toys are a legitimate investment even apart from the companies that manufacture and distribute them. The factors that affect the value of a toy are broad demand, lasting brand, and–the hardest for the inner child–keeping them factory sealed.

Star Wars VII: The Force Awakens figure prices run between $7.99 and $12.99 depending on the variation. Hasbro (HAS) has long released multiple variations of figures–some include weapons while others come with large accessories or accompany vehicles. Broad-shouldered figures with wide stances for younger children start at $9.99. There are large vehicles, Star Wars crossover Matchbox (MAT) cars, Lego sets, and even an interactive robot.

 

Stock, Options, and Playsets

Investors looking to cash in on the newest wave of Star Wars merchandise can invest in the company directly: Disney (DIS), Hasbro (HAS), and Mattel (MAT) on the manufacturing side; Barnes and Noble (BKS), Wal-Mart (WMT), and BestBuy (BBY) on the distributing side. (Lego and Toys R Us are privately held companies.) Currently, Disney stock costs around $100 per share, up 230% since acquiring Lucasfilms.

But what if someone wanted to diversify into toys themselves? History says avoid Hasbro figures. Leading up to Star Wars II: Attack of the Clones, the price of Hasbro figures and sets saw a run-up in demand. Harder to find figures, such as Darth Tyranus, sold at 200% retail on ebay (EBAY). But that was short lived. You can now purchase the same figure for less than the 2002 retail price. The same goes for figures packaged for the 1997 re-release of Star Wars IV: A New Hope. Despite many variant cards (i.e. some had stickers adhered to the card, while others had printed character pictures) these figures also sell at great discounts to original prices. Since the Hasbro acquisition of Kenner/Tonka in 1991, Star Wars figures have been a real investing dud.

 

Buy Lego

In the 1970s, Lego booked annual profits around $50 million. Then ten years ago, Lego almost folded as a company. Since then, sales have improved. In the first 6 months of 2015, Lego saw profits rise 27% to $1.7 billion. Unfortunately, you can’t buy stock in the privately held company. What you can do is purchase its branded products. For example, the Ultimate Collector’s Millennium Falcon (10179) sold at retail for $500 in 2009. Today, the unopened product sells at prices between $4000 and $8000.

The Star Wars Ultimate Collector’s Series isn’t an anomaly. Comparing prices from a dozen smaller Star Wars sets, retailing for $12.00 and released 5 years ago, these sets have increased in price on average 90%. This is true of Harry Potter sets as well. And while only the rarest “minifigs” see 1000% mark-ups (e.g. Gold Chrome-plated C3-PO), most Lego sets increase in value over time.

One reason is Lego’s retirement process. Every set is manufactured, marketed, and sold for a limited period of time. Then it goes into retirement. Even if a similar model is released later, like the Millennium Falcon, everything is different:  from the packaging to the actual pieces. And each gets its own unique ID, those numbers in parentheses after the title of each set.

The other factor is targeting a cross-branded audience. Star Wars fans may have no interest in Lego generally, but may still collect Star Wars Lego. Lego fan’s may have no real interest in Lord of the Rings, but may still collect the Middle Earth series which itself has been retired.  The Battle of Helms Deep (9474) retailed for $129 in 2012. Today it sells for twice that.

 

The Basics of “Brickmaster” Collecting

Investing in Lego is easy, less volatile than the stock market, and loads more fun. Here are a few guiding principles:

1. Look for products that will reach a broader audience: Star Wars, Harry Potter, Lord of the Rings, etc.

2. Use store coupons to purchase items at a discount to retail price. A 20% off coupon brings your entry point substantially lower.

3. Select the packages in the best conditions.

4. And whatever you do, don’t ever, ever open them!

Summary 

One doesn’t need to be force-sensitive to figure out the best investment options. Only Disney (DIS) remains a pure Star-Wars investment trade, but physical Lego products may actually prove to be the best long-term, buy-and-hold investment.

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