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Adding to Two Positions on Weakness

We'll build our holding in this regional ETF and in this fast-food name.
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After you have received this Alert, we're going to buy 500 shares of the iShares MSCI Japan ETF (EWJ) at $9.85 and 100 shares of Yum! Brands (YUM) at $66.05, now that our restrictions are cleared on both.

We like the Japan story as the country's new leadership begins to reflate its economy, led by the new prime minster, Shinzo Abe. The recent change in leadership brings the conservative, pro-business, Democratic party back to power. His revival plans are still evolving, but he is proposing a combination of "aggressive monetary easing" and fiscal spending in order to encourage investment and get growth going.

The government will announce details of the 10 trillion yen, or 2% of GDP, in extra budget that is to be used for both additional stimulus and public infrastructure. Other programs include new programs aimed directly at businesses worth $5 billion, the DJB issuing a state-backed plan of $1.7 billion in lending programs, a Japan Bank of International Cooperation stimulus fund worth 200 billion yen, and 83 billion yen in loan guarantees.

There's also talk that Abe will delay or cut out the proposed consumption tax increase (5% to 8%). The top stocks in this ETF are high-quality plays: Toyota, 5.85%, Mitsubishi UFJ Fin, 3.14%, Honda Motor, 2.71%, Sumitomo Financial, 2.25%, Canon, 2.01%, Mizuho Financial, 1.92%, Takeda Pharma, 1.62%, FANUC, 1.59%, Softbank, 1.57%, and Mitsubishi Estate, 1.28%.

Yum! Brand shares fell hard earlier this week after the company lowered its same-store sales guidance for China to a decline of 6% from initial guidance of a drop of 4%. We were restricted in the name but said we'd be buying the weakness. Today we can trade it, and although it isn't below $65, we want to build the position into the weakness.

The weaker guidance is related to the problem regarding chicken suppliers to KFC restaurants, which account for 80% of Yum!'s total sales in China. The problem has since been resolved with new suppliers. We fully expect comps to be weak in China KFC for the next few quarters, but since earnings estimates are already down substantially and the stock is off 12% from its high, we believe the risk/reward is attractive for a double-digit earnings and revenue grower, a margin expansion story and one of the best ways to play global growth in the future at a discounted price.

After our trades, we'll own 2,600 shares of EWJ, or 0.9% of the portfolio, and 900 shares of YUM, or 2.04%.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUSwas long EWJ and YUM.

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