Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday December 11.
Yum Brands (YUM) has been considered a great growth story, but some decided to revise this thesis after YUM's November 30th report when management said it expected a 4% decline in Chinese sales. With 45% of Yum's revenues coming from China, this seems like a major setback. The stock fell 10% in one day and was downgraded by 2 analysts. However, at Yum's analyst day last Thursday, management painted a more positive picture, and discussed the strength of Yum's domestic business, growth in India and the dramatic turnaround at Taco Bell. Yum was upgraded by two analysts following this report.
Cramer thinks this growth stock has hit a major speed bump in China, but its problems in the Middle Kingdom are short-term. Yum had tremendously difficult comps to compete with: a 21% increase in Chinese sales last year. The Chinese economy seems to be shaping up, and the consumer will soon be spending again. Yum had to face the challenge of high rents in major Chinese cities and increasing competition. The company plans to deal with this by expanding into areas where rents are lower and there is less competition. Cramer thinks Yum should spin off its fast growing international business from its domestic segment, which will have less momentum, but can pay out a higher yield. A similar split worked well for Altria (MO) and Philip Morris (PM). Currently, Yum sells for 18 times earnings with a 14% growth rate. If Yum split up its segments, it would be worth 14% more.
Cramer took a call:
McDonald's (MCD) seems to finally be regaining strength after positive November sales. MCD is a cheap stock, and Cramer would buy it.
CEO Interview: Steve Sadove, Saks (NYSE:SKS)
With talk in Washington about possibly increasing taxes on the wealthy, Saks (SKS) is a "tell" on how this move will affect luxury retail. Saks was hit hard by Hurricane Sandy, with many of its locations closing for up to a week. "It was a punch in the stomach," admitted CEO Steve Sadove,"but we feel bullish for the long-term." He said that the fact the Dow is strong is a sign of confidence in spite of uncertain economic conditions. Accessories, jewelry, shoes and handbags are currently popular at Saks, in addition to apparel that is fresh and different. The tourist shopper has been an important driver of Saks' sales, and while fewer Europeans are coming to shop, the Chinese shopper is filling the void. Cramer thinks Saks is a buy for investors who believe that the stock market is going higher.
With all the criticism of the government, Cramer reflected on something the government did right; rescuing AIG (AIG). While the move drew heavy criticism at the time, much of the banking system would have crumbled if measures were not taken to keep AIG afloat. The result was a perhaps unintentionally smart investment and not a mere bailout; AIG is thriving, and it isn't done going up, thanks in good part to its CEO Bob Ben Mosche, who was a vast improvement over former AIG managers. Both Ben Mosche and Tim Massad of the Treasury Department deserve kudos for the successful rescue of AIG.
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