Yum stock versus McDonalds stock is my explanation of where I think YUM Stock is heading and why I am continuing with my writing puts strategy on Yum Stock.
YUM STOCK EARNINGS UP 7%
After hours, the earnings came out on YUM Brands. They are up 7% or .63 cents a share before a special one time cost which reduces the earnings to .54. YUM’s earnings continue to be good but here is why I prefer my strategy over owning any shares. I am sure earnings like those today will jump YUM Stock higher for a while and might even set a new higher trading range, but overall I prefer to be on the cautious side.
YUM STOCK – Earnings Are Not Growing In The USA
The earnings for the past 5 quarters are below. As long as the earnings can stay above last year, then YUM Stock should trade higher or at least in a higher range, but earnings from the US were down. Overall just 1%, but it shows the weakness of the world’s biggest economy. In the US not only is there more competition, but the cost of food is being reflected in the declining US dollar.
Yum Stock Earnings / Last 5 Quarters to April 2011
YUM STOCK – Earnings Outside USA Are Strong
Meanwhile earnings outside the US and in particular Asia are very good, up 18% in China and 5% worldwide. This is excellent news, but let’s look first at the YUM Stock chart above. Since March’s earnings YUM Stock stayed sideways until September when YUM Brands turned in a stellar performance and the forward-looking statement promised more growth.
The Dec earnings of .63 cents was good but not what a lot of investors had hoped for after September’s earnings. YUM Stock pulled back from Dec through to Feb and despite the market itself moving higher into Feb 2011, YUM Stock moved to a low on Feb 24 of $48.67. But while the earnings were good after hours, overall the earnings of .63 cents matches December’s.
YUM STOCK – Using The Lower Bollinger
The lower Bollinger is my key to when this stock may set a new trend. I have set my trading range between the upper Bollinger from the previous range and the lower Bollinger from the most recent move, which is around the $48 strike.
Once the lower Bollinger holds for a few months and can confirm a move to a higher trading range then I will look to sell puts on YUM Stock at higher strikes, but until then every move to the lower Bollinger should give me the opportunity to sell more naked puts within my range. Use this YUM Stock link to view the last 3 month stock chart.
YUM STOCK VS MCDONALDS STOCK – It’s In The Stats
Meanwhile here is how I view both YUM Brands and the other large restaurant stock, McDonalds. While so many of the statistics favor McDonalds stock it is the return on equity that favors YUM Stock. For traders who follow stocks, it is the constant ability to trade these two stocks with limited downside risk, that is so enticing. A trader could buy and sell either YUM Stock or McDonalds Stock many times throughout the year and be comfortable that if he bought at what he perceived to be a low and the stock moved lower than expected, he would still have a better than 50% odds that the stock would recover.
YUM Stock versus McDonalds Stock statistics
YUM STOCK VS MCDONALDS STOCK – Comparing Fast Food Giants
The stock chart below compares the performance of both stocks. The larger gain in YUM Stock is clear plus YUM Stock has set two new higher highs. Meanwhile McDonalds Stock has failed to set a new high since December of 2010. This is the reason for the larger return on equity and return on investment for YUM Stock.
Meanwhile though McDonalds has a better dividend, better debt to capital ratio, lower PE, better earnings, cash flow and of particular interest, book value. However the market cap is much larger for McDonalds but revenue is much better at YUM Brands. The two charts below show that both have decent trading ranges. I find both stocks are excellent for selling naked puts. Earnings continue to support a decent trading range for both stocks particularly watching the lower Bollinger band.
Yum Stock VS McDonalds Stock Performance Chart From April 2010
YUM STOCK VS MCDONALDS STOCK SUMMARY
Both YUM Stock and McDonalds Stock have been excellent stocks for my portfolio. Recent earnings from YUM Brands show good growth outside the US, and while analysts talk up the stock, I tend to look at it more for its range. At .63 cents the recent quarter matches December and does beat last year’s same quarter. However could the stock be ahead of itself? The PE is higher on YUM Stock than McDonalds Stock, debt is larger at YUM Brands, book value less, but on the other hand YUM Stock has provided a better return on equity and investment for shareholders and has set two new highs since Nov 2010.
Advantages Of YUM Stock Failing To Move Higher
I always take a different approach to stocks and both of these are good examples. For my strategy of selling naked puts I am seeking stability of price and a trading range rather than being concerned about the stock climbing higher. In fact, a higher priced stock often increases the risk of the stock pulling back in any selling and could catch my naked puts and put me in the money. Unless earnings can justify a higher PE often a run-up can be just as quickly followed by a pull back.
Range Bound Stocks Like YUM Stock Have Distinct Advantages When Selling Puts
When I sell naked puts they are often at risk of assignment for 30 to 60 days. A range bound stock though, gives me some idea about what the future could hold and what the high and low areas of the stock could be. While it’s a judgment call as to where the stock might go, I have some “crystal ball” through the Bollinger Bands. So when the stock moves to the lower Bollinger I can sell my puts and when it moves up I can buy them back.
However, if I am wrong and the stock pulls back too far, and I get assigned before I actually wanted the shares, at least I am in a stock that has met all my parameters, including dividend, reasonable PE, large cap, solid earnings, increasing dividend and I am at the lower end of the Bollinger Band.
Any investor could take this same concept and apply it to stocks they follow. The trick is having faith in the stock and in the technical analysis they do in order to have comfort in the price strikes they choose. After looking at the above I have faith in both Yum Stock and McDonalds Stock.