A Pair of Buys on Strength
This morning, Yums! Brands (YUM) is down 2% and AIG (AIG) has sunk 1% -- so we'll add 100 shares to each at $67.30 and $35.95, respectively, after you receive this Alert.
There are several reasons to like the Yum story. First there's the exposure to China, which stands at 45% of Yum's operating income -- and, amid the global rise of the middle class, the company's total international operating income comes to 65%. There's the strong size and scale of the company as the largest restaurant operator: Yum sports 38,000 units globally vs. 34,000 for McDonald's (MCD) and 35,000 for Subway. Finally there's the growth potential, which is expected at 15,000 units worldwide over the next 10 years.
We expect new product introductions, more in-store and drive-through opportunities, productivity enhancements and lower raw-material costs will lead to an earnings recovery in this name. Specifically, we see Yum's top and bottom lines growing in the double digits for 2013. Further, the stock has pulled back 9.9% from recent highs, so we like the risk-reward scenario at this level.
Turning to AIG, this continues to be one of our favorite insurance-segment turnaround stories for 2013 following the company's exit from government ownership. We believe management's focus on improving its core assets -- life/property and casualty -- will drive the future share price, along with strengthening of its balance sheet. Book value comes to 0.68x, so the risk-reward is favorable here as well.
After our trade we'll own 800 shares of Yum! Brands, or 1.83% of the portfolio, and 1,200 shares of AIG, or 1.5%.
Regards,
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUSwas long YUM and AIG.
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