Newsletter Watch: JAKKS Pacific

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Validea, edited by John Reese, is an intriguing advisor service that assesses stocks based on the known investment criteria of "legendary" stock investors.

The origin of this newsletter, incidentally, was his book, The Market Gurus. The goal of the book, he says, was to find individuals who had a long-term record of outperforming the market, and then to find out as much as he could about their specific strategies.

Reese sought investment strategies that could easily be followed by individual investors. The gurus (those who ended up under his coverage) include Warren Buffett, Peter Lynch, Ben Graham, Martin Zweig and David Dreman.

The success of the book led to the launch of Validea, a newsletter that takes individual stocks and runs them through detailed screens against the requirements of these "guru strategies."

One of Reese's latest featured stocks is children's products retailer JAKKS Pacific (Nasdaq:JAKK), which passes the parameters based on the strategies of Kenneth Fisher, Peter Lynch and Benjamin Graham.

The $653-million market-cap company makes an assortment of children's toys and leisure products, such as Dora the Explorer and Pokeman playsets, Plug It In & Play video games and World Wrestling Entertainment figurines.

"To identify stocks that are selling at a good price, Fisher created the price-to-sales ratio (PSR). For non-cyclical companies such as JAKKS, my Fisher-based model considers PSRs below 0.75 to be tremendous values," he says, noting that JAKKS' PSR is just below that cutoff, making the grade.

He says that Fisher also likes companies with little debt, so his screen looks for companies with debt and equity ratios less than 40%. With a debt and equity ratio of 14.12%, he says, JAKKS passes another guideline.

Profit margins are also important to Fisher, Reese says. His Fisher-based model requires companies to have average profit margins of at least 5% over the . . .

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