China'sGDP growth is projected by the Chinese Academy of Social
Sciences to be 9.9% this year, making it by far the
fastest-growingeconomy in the world.
Although Chinese "A"shares ,
of mainland China-cased companies, are generally restricted to its
own citizens, there are still many ways to invest in China. You can
buy companies that mine raw materials like copper or drill for oil,
two commodities for which the Chinese
has a rapacious demand. You can also invest in a
such as the
Morgan Stanley China Fund (NYSE:
Or you can buy anNYSE stock that opened 500 new restaurants in
China in 2010 -- 36% of its total global expansion.
What's the name of this stock? Here are some clues...
This food company was spun-off from
in 1997. By 2010, the company was opening an average of four new
restaurants a day worldwide.
This Louisville, Ky., firm is theparent company of some of the
world's largest restaurant chains, with nearly 38,000 outlets in
more than 110 countries across the globe.
The company I'm referring to is
YUM! Brands (NYSE:
YUM!'s brands include KFC, Taco Bell, Pizza Hut, Long John Silver's
The company plans to divest its interest in A&W and Long John
Silver's and instead focus on developing its core brands,
especially KFC, in China. That decision is likely to boost revenue
Of the nearly 1,400 new KFC restaurants opened in 2010, more than
500 of them, or 36%, were located in mainland China. This growth
brings the number of KFC restaurants in China to more than 3,000.
However, YUM projects demand could easily lead to 15,000 new KFC
restaurants being opened in China in the coming years. In fact, KFC
is so popular -- and so profitable -- in China, that the company
often earns back its capital investment in less than three years.
YUM is also achieving international growth by co-branding its
restaurants, opening one location housing two outlets, such as a
combined KFC/Taco Bell. This strategy is helping the company
increase sales and distribution points without the added cost of
opening two separate storefronts.
And because independent franchisees own and operate the bulk of
these restaurants, the company maintains steadycash flow without
having to invest in major capital or operations management
Despite food rising andcommodity costs, YUM is seen as being
well-positioned to manage foodinflation costs because, unlike
smaller companies, it is able to lock-in future food purchases. As
such, the company has a key strategic advantage in the fast food
Technically, YUM appears strong. The stock is in a
and is again approaching its all-time high of $53.19, hit in late
For just over a year, from mid-February 2010 onward, the stock has
been in an accelerated uptrend.
In late-August 2010, the company surpassed old resistance, which
has become new support, near $42.50, bullishly completing an
pattern. The stock is now in a second ascending triangle pattern,
formed by the accelerated uptrend line and resistance at $53.19.
If the stock can surpass this point, there would no historical
resistance in sight -- and YUM could soar.
for a triangle projects a price target of at least $63.88 ($53.19 -
$42.50 = $10.69; $10.69 + $53.19 = $63.88).
From a fundamental standpoint, YUM shows excellent growth
Full-year 2010 revenue increased 4.6% to $11.3 billion, from $10.8
billion in 2009. Growth was largely driven by a 17% sales increase
in China, the company's most profitable market.
YUM will report first-quarter 2011 results on April 11. Analysts
expect revenue will increase 1.9% to $2.4 billion, from $2.3
billion in the year-ago quarter, due to continued expansion in
For the full 2011 year, analysts' project revenue will increase
3.9% to $11.8 billion. As the company continues to expand
internationally, revenue is expected to rise a further 5.5% to
$12.4 billion, by 2012.
outlook is equally bright.
Full-year 2010 earnings were up 12.6% to $2.53 a share, from $2.25
the previous year. The increase was achieved through a combination
of sales growth, higher
margins and an aggressive share buyback program. In 2010, YUM
repurchased 9.8 million
, maintaining its goal of reducing outstanding shares by at least
5% each year. In January 2011, YUM announced it will repurchase
another $750 million in outstanding shares in the next year and a
For the first-quarter of 2011, analysts project earnings will rise
8.5% to $0.64, from $0.59 in the year-ago quarter.
For full-year 2011, earnings are expected to rise 12.7% to $2.85.
With continued expansion in China, analysts project further
earnings growth of 12% in 2012, with earnings reaching $3.19.
Although YUM does have a high
of $3.6 billion, compared to $1.4 billion in cash, this is due to
aggressive expansion in China and will likely be reduced in the
years to come.
On March 25, the board of directors confirmed its $0.25
, meaning YUM now offers an annual forward dividend of about 1.9%.
is also likely to increase over time, as the company has raised its
dividend every year since it was initiated in 2004.
Action to Take -->
With a solid dividend, strong fundamentals and bullish technicals,
YUM currently looks appealing. Despite rising food costs and the
company's already dominant global presence, YUM appears to still
have substantial room to grow, especially in China, making the
stock an attractive long-term investment.
I think traders can expect YUM to reach its $63.88 target, set by
the formula above, giving the stock more than 21% upside from the
breakout level with little risk.
-- Dr. Melvin Pasternak
P.S. -- I don't know if you're aware of this or not, but a
20-year energy agreement between the United States and Russia is
about to expire. The problem is, this deal supplies 10% of
America's electricity. When the Russians refuse to renew the
agreement, the U.S. will face an entirely new kind of energy
crisis. This disruption could send a handful of energy stocks
through the roof. Keep reading…
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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