Cramer advises using Toys R Us-related weakness to 'scale into Hasbro'
CNBC's Jim Cramer recommends buying into the stock of Hasbro on the back of Toys R Us' liquidation.
The "Mad Money" host compares Hasbro's situation to Nike's during the bankruptcy of Sports Authority.
It's time for investors to reconsider the stock of toymaker Hasbro HAS after retailer Toys R Us closed the last of its U.S. stores, CNBC's Jim Cramer said on Monday.
"You might want to use any additional Toys R Us-related doom and gloom to scale into Hasbro on weakness, because long term, you may end up looking back on this moment as a terrific buying opportunity," the " Mad Money " host said.
Down 17 percent since its 2017 highs, Hasbro's stock has struggled amid the long-winded liquidation of Toys R Us . Hasbro's sales suffered as Toys R Us — which accounted for 9 percent of its sales — unraveled, forcing management to find other paths to profit including online retail.
To Cramer, the situation looked a lot like when athletic retailer Sports Authority filed for bankruptcy in 2016, which resulted in months of weakness for sportswear makers like Nike NKE .
"But if you were patient, if you used the pain to buy Nike into weakness, you eventually got an amazing opportunity because, long term, Nike was not totally dependent on Sports Authority," he said. "It’s the dominant player in the sneaker space and it was always going to do just fine."
Cramer argued that the same is true for Hasbro, a sprawling toy and game manufacturer with winning franchises like Transformers and My Little Pony and licenses to make toys for the Star Wars and Marvel comics movie series.
He also noted the stock's resilience: the share price has more than doubled in the last five years, rallying another $10 a share since Hasbro's weaker-than-expected earnings report in April.
Shares of Hasbro closed up 0.72 percent on Monday, at $96.74.
And while the "Mad Money" host didn't expect Hasbro's earnings to recover very quickly, noting that the second-quarter report would likely still show signs of pain, he said the company's prospects were still strong.
"The basic dynamics of the toy business haven’t really changed," Cramer said. "There’s still the same amount of demand, right? You just have one less player trying to fill it. Meanwhile, everybody else from Amazon AMZN to Kohl’s KSS is trying to fill the vacuum. But whichever retailer wins, they’re going to want Hasbro’s merchandise because they have the best media tie-ins."
But Hasbro has even more going for it than its movie deals, Cramer said. The company has been adding new distribution channels, investing heavily in e-commerce and executing on a $500 million share buyback.
Better yet, Mattel MAT , Hasbro's main competitor, has been experiencing some pain of its own. The Barbie and American Girl doll maker's sales have been in long-term decline , and its recent CEO swap suggests more pressure could lie ahead.
So ahead of Hasbro's next earnings report in late July, Cramer suggested buying some shares, then waiting for a post-earnings pullback to build your position.
"If the aftermath of the Toys R Us liquidation plays out anything like Sports Authority — and I think it will — you’re going to want to build a position in Hasbro over the next six months," the "Mad Money" host said. "It’s the Nike of the toy space and I think it makes a terrific long-term holding. Just remember that you need to be patient before you put on your full position. I think we'll look back and marvel that we got this amazing opportunity."
WATCH: Cramer's case for buying Hasbro's stock
Disclosure: Cramer's charitable trust owns shares of Amazon and Kohl's.
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