The investment world is very precarious place these days filled with optimism and despair. Most investment managers are optimistic that companies will outperform in the first half of 2013. The global economy does not look so bleak at the moment with the Eurozone quiet, China growing and US slowly marching ahead. With publicly well-know central bank support around the globe, the markets have a greater likelihood of upside potential as most would not want to “fight the Fed.” Much of the despair felt in the markets unfortunately stems from the political wrangling in Washington, and politicians’ inability to come to an agreement on a fiscal plan. Most folks refer to it as the US fiscal cliff, but it is more like a slope that will be tolerable in the beginning and get worse over time.
Most business have prepared for the possibility that the US will go over the fiscal cliff, as there was always a strong likelihood it could happen. A little bit of uncertainty in 2013 is expected and perhaps it will inadvertently help the country to get its spending habits under control. But if negotiations continue for more than a month without an agreement in place, the markets could begin to start factoring in greater consequences for the economy. Most notably in employment, the majority of corporations will cut back on hiring and only fill those positions that are absolute necessary for their core business. Other areas of the business community such as expansion plans and research development will be negatively affected, as uncertainty about the near term will heighten.
The political drama will of course present opportunities for those investors with nerves of steel. There will be plenty of great entry points for small to mid-cap companies in every sector. The consumer has shown strength for most of this year and is expected to carry the momentum into 2013. That said, investing in companies or sectors that can thrive off the strong trend in consumer buying appears would be a plausible strategy. The $22 billon toy industry has a bunch of strong companies, but one smaller cap gem that seems to be overlooked is Leapfrog Enterprises.
Leapfrog Enterprises (NYSE: LF) develops and markets technology-based learning products and related proprietary content for children worldwide. The company has a market capitalization of $535mm and competes in the toy industry with behemoths such as Mattel (NYSE: MAT) and Hasbro (NYSE: HAS). Other small and mid-cap competitors in the industry include Jakks Pacific (NASDAQ: JAKK) and Mega Brands (TORONTO: MB.TO). All of the aforementioned competitors have product lines that directly compete for market share with Leapfrog.
Leapfrog is an interesting opportunity as there has been quite a bit of insider buying in the last couple of months as the executive team appears to be purchasing more equity in the company than usual. CEO John Barbour has purchased shares several times over the last 8-weeks, along with company’s CFO, Raymond Arthur. Other members of the executive team that have been buying include the President of the company, Michael Dodd, Directors E Stanton Mckee Jr, Owen Randall Rissman and Gregory Ahearn. With many members of the company consistently purchasing shares over the last couple of months, it is encouraging sign going into 2013.
Besides the insider buying, Leapfrog announced earlier this month that its “Leappad #2” is the #1 selling table and #1 toy in the UK, according to NPD data. The company is considered to be the fastest growing toy company in the UK, and currently in the top ten with impressive growth of 33 percent year over year by value of goods sold. Any weakness is LF could be considered a buying opportunity as the company looks poised to take more market share this year.