I was recently sitting in a Mexican restaurant talking to a friend of mine about investing, his name is Scott. Since we were eating Mexican food and Scott enjoys tacos I told him maybe he should think of investing in YUM (YUM) which holds the Taco Bell business. I told him not only do you get Taco Bell with YUM, but you also get KFC and Pizza Hut as well. You get three great food chains that are deeply entrenched in the United States and around the world. YUM, operates as a quick service restaurant company in the United States and internationally. It develops, operates, franchises, and licenses a system of restaurants, which prepare, package, and sell various food items, as well as operates a Chinese casual dining concept. YUM restaurants specialize in chicken, pizza, and Mexican-style food categories. It operates approximately 37,000 restaurants in 110 countries and territories under the KFC, Pizza Hut, and Taco Bell brands, as well as approximately 450 casual dining concept restaurants in China. The company was formerly known as TRICON Global Restaurants, Inc. and changed its name to YUM! Brands, Inc. in May 2002. YUM was founded in 1997 and is headquartered in Louisville, Kentucky.
Currently the broader market has been in a corrective mode for a few months. As stocks come in to find their lows and base, investors are compiling their watch lists with the stocks that will be the first to recover. YUM should be one stocks on this list. Technically speaking, YUM is a broken stock. This technical pattern usually means investors are selling shares in the company.
Now I am in no way advocating that YUM is a bad investment this technical pattern is only how the market is treating YUM currently. There are many reasons why this may be taking place but the obvious reason is that the broader market has been selling off and bringing down YUM too. Since YUM has a significant number of stores in the European market and that market is experiencing a financial crisis this is bringing YUM down too. The final reason would be that China is experiencing a slow down as well and since YUM has legions of locations there to, sales would be down in China as well.
Technically, YUM looks as if it might have formed a near term base. This would actually be a great time to start to scale into a position in YUM. MACD looks like it has bottomed and is turning up. Buy volume has picked up just a bit which means Institutions might be starting to buy YUM again.
Taking a closer look at the fundamentals and you will find that YUM is run exceptionally well for a giant food chain that has experienced so much growth over the past several years across multiple countries. Just look at YUM's gross margin it is consistently in the high twenties, this is exceptionally high and very good for a food chain. Current EPS is .70 with growth in EPS for next fiscal year of $3.80. YUM's expected 5 year PEG is going to be 1.4 which is very healthy.
Even the growth rate is exceptional growing from 5.8% currently to over 14% by fiscal next year. The future is bright for YUM. Shareholders will be rewarded for holding their shares through this down turn. Patience, growth and exceptional brands will propel Yum into the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.