Cramer: Once Hot, Is Yum Signaling Cooler China?
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."
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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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