Monday, July 16, 2007

Digested Gains in Yum Brands

I reversed my strategy on Yum! Brands (YUM) after devoting more thought to the company’s quarter which it announced last Wednesday. The quarter was not as good as the headline numbers because of the significantly lower effective tax rate. Furthermore, YUM’s restaurant margins declined due to higher food costs stemming from commodity prices. Thus, with YUM rising about 2% from my last buy point, I decided to take some profits on the stock. While I still think that YUM can get to $40 by the end of 2008 and love the growth in China, I think that the back half of 2007 could be more difficult than the company has forecasted. Furthermore the weakness in the restaurant stocks and better opportunities in other sectors – such as technology, metals, mining and machinery - lead me to use YUM as a trading vehicle but not as an investment.

No position in stocks mentioned

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