The maker of Hot Wheels is racing up the recovery track, although some friction in the form of recession fears could be ahead.

After falling more than 28 percent in the last year, Mattel Inc.’s stock looks like it has hit bottom and has begun swinging up.

Share prices for the El Segundo company turned the corner last week, rising more than 8 percent in one day after an analyst said the company’s valuation has factored in all its troubles, including the recall of nearly 21 million toys in 2007.

“The current stock price more than adequately discounts a host of headwinds, including tightening consumer spending, rising costs, and the hangover of last year’s product recalls,” wrote Sean McGowan at Needham & Co. in a research note.

McGowan upgraded his rating from “hold” to “strong buy.” Among the 12 analysts who currently follow Mattel, six now rate it as “outperform” or “buy,” five maintain a neutral stance, and only one rates it “sell.”

“The stock is ridiculously cheap,” said Chris White, an analyst at Wedbush Morgan Securities in Los Angeles. In terms of price-to-earnings, Mattel shares haven’t been this affordable in 15 years said White, who gives it a “buy” rating.

But even as they advised investors to purchase Mattel shares, the analysts downgraded their expectations for 2008 earnings based on a looming recession that could hamper discretionary purchases, including toys.

“We like the stock at these prices, but we think the economy is slowing,” White said. “The big retailers who are Mattel’s customers have sounded caution going forward. It’s hard to see them being aggressive in ordering a lot of product, so we adjusted our estimates to reflect that.”

For fourth quarter 2007, White expects revenue to come in at 1.2 percent less than a year earlier. For all of 2008, he estimates sales of $5.96 billion, delivering marginal growth only 1.1 percent better than the $5.89 billion total projected for this year.

For the rest of this year, inflation will impact Mattel on both ends: Consumers will have less money for toys, and manufacturing costs will rise, according to White. Despite recent declines, futures for petroleum, the main ingredient in plastics, still trade near record highs.

Last year a study by Dartmouth’s Tuck School of Business Administration predicted toy prices would rise 10 percent next year as manufacturers either improve their plants in low-cost nations or move them to the U.S. or Europe, where higher safety standards exist. Mattel in particular will be upgrading its facilities in China, where lead-tainted paint resulted in the massive product recalls in 2007.

Mattel’s troubles started last July, when rumors surfaced that the company had detected lead in some of its made-in-China products. At the time, Mattel stock traded in the $26 range. During the next five months, the company voluntarily announced multiple recalls in its Fisher-Price, Pixar Cars and Barbie accessory lines.

Marketing professionals gave Mattel Chief Executive Officer Robert Eckert high marks for his honest handling of the crisis. Regardless, the stock sank to a 52-week low of $16.65 on Jan. 15 before its upturn. It closed at $17.99 on Jan. 16.

White believes investors have now fully digested last year’s bad news.

“I don’t think the stock price, and even its poor performance, has anything to do with investor disappointment over the recall,” he said.

Even with its recent rebound, Mattel is still trading 22 percent below its year-ago mark. However, the toymaker still beat the average decline in the leisure products category, which is off nearly 27 percent.