Cramer: Once Hot, Is Yum Signaling Cooler China?

Fast-Food: Key to Good US-China Relations?
Teh Eng Koon | AFP | Getty Images

Stunned investors sent shares of Yum tumbling after the company said sales in China were expected to fall 4 percent. Is China's economy in trouble?

On the Street, Yum Brands, the owner of KFC, is widely considered a proxy stock for China growth. More than half its total revenue and operating profit for the third quarter of 2012 come from China.

"I think of Yum as a Chinese dog with and American tail," Cramer said. Also 44 percent of its sales come from China."

Should you take the data from Yum as a sign that China is backsliding? Although recent economic data from Beijing suggested China's economy was stabilizing, are those numbers false?

"I am going to put it on the line: absolutely not," Cramer said.

The Mad Money host thinks the most likely explanation is that Yum! is a one-off situation. "The business of fried chicken has just cooled there, I can't draw any other conclusion," he said.

And he added there are too many good things happening in China including a series of bank reserve injections that have really boosted industrial growth.

"Plus, it is worth pointing out that the United States slowed a bit, too. It was, alas, a huge disappointment for a stock that had been on a tear of late."

What's the bottom line?

Don't draw a conclusion that China's slipping back. We have way too much evidence to the contrary.

And if you're holding Yum in your portfolio Cramer added, "YUM's a remarkably run company. I would not be surprised if the stock hasn't overreacted to this news. My inclination would be to hold on to it if you own it. I believe you could get out at a higher price."

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