The stock market takes no prisoners at times like this. As a result, some really good companies are being thrown out with the bath water.
Take for example defensive play, Yum Brands (Symbol: YUM), the company that operates various restaurants, including KFC, Pizza Hut and Taco Bell. Since reaching a high of $40.60 in November, shares have dropped by 13%.
Some reward at a time when the company actually raised guidance for 2008 from $1.82 per share to $1.85 per share.
So, what gives?
Well, I guess the fear has risen to such a level that the market is discounting even good news. Concerns over the economy and the impact of the credit crunch continue to resonate with investors.
From a rational perspective, none of this makes any sense. And there is a very good reason the stock is a buy.
Here’s a hint: Robert Hsu, editor of China Strategy, lists Yum Brands as a buy to his subscribers who want to ride the profit wave of the China economy.
Ah, that’s right China!
In 2007 YUM saw explosive growth in China stocks with revenues and operating profit increasing by 39% and 44% respectively. In addition, the company opened a record 471 new restaurants in China alone. And there is more to come I am sure.
Despite a slowdown here in the United States, China’s economy is still growing impressively with no signs of letting up. Although exports may slow over time, opportunities for foreign entities operating within China’s borders still abound (see also "Investment Opportunities of Olympic Proportions").
They have a long way to go before becoming addicted to fast food in the same way we have here in the U.S.
The best part of this recommendation in my opinion is the defensive nature of the stock. Even with a U.S. slow down, cheap fast food should always sell. In fact, if the recession takes hold for longer than some expect, I might even argue that YUM sales will increase as a result of more people searching for quick and cheap food alternatives.
Think about it for a second.
If we all have to work harder when times are tough, there will be less time for traditional cooking. At a minimum, this dynamic should protect YUM shareholders from a protracted stock slump.
Now for the best part: YUM is a growth stock too! As mentioned above the opportunity in the China economy should allow YUM to increase earnings going forward. So, at a time when most companies are cutting guidance, YUM raised theirs.
In my mind, the opportunity to buy this stock for more than 10% Robert Hsu’s buy limit is a big deal. Robert’s recommendations in the past have done quite well and buying YUM at a discount portends a bright future.
Check out YUM and other great buys in his China Strategy newsletter. I promise, you won’t be disappointed.
Join China Strategy RISK-FREE today and let Robert Hsu bring you the latest news and developments straight from China!
In every issue of China Strategy, he’ll show you exactly how to profit from YUM Brands and a ton of other extraordinary China stocks! Sign up for your RISK-FREE trial subscription right now and you’ll also get 7 of Robert’s premium investing reports absolutely free! Don’t miss out!