Top Pick Tuesdays – Yum China Holdings, Inc.

Yum China Holdings, Inc. (YUMC:NYSE)
Price at Preparation: $41.34 (Feb 16th, 2024)

What they do

Yum China Holdings, Inc. (YUMC:NYSE) engages in the business of franchising and owning entities that own and operate restaurants. It operates through the following segments: Kentucky Fried Chicken (KFC), Pizza Hut, and other segments. The KFC segment focuses on operating a restaurant chain. The Pizza Hut segment offers casual dining and home service. Other segments include Taco Bell, Lavazza, Little Sheep, Huang Ji Huang, COFFii and JOY, East Dawning, and other e-commerce businesses. The company was founded in 1987 and is headquartered in Shanghai, China.

At Theta Bandits, we’re searching for those assets that we feel are undervalued with a potential for a nice return here or abroad. Today’s pick is a bit of both – YUMC is traded on the NYSE and has a U.S. counterpart however, we are presenting the Chinese version of this as this stock appears to be on the upswing and has a massive customer footprint with lots of potential.

The Chinese economy has been in the “bad books” and under pressure in recent years and the road to recovery has been both bumpy and taken longer than expected.  As all market swings, their time will come, and we want to plan to take advantage for when it does. One way is through YUMC and using the advantage of the size of the population footprint being served as the catalyst. From 52-week low of $33.55 USD they beat their last earnings report (ER) and had a nice jump to start a nice upswing. At preparation the current price is $41.34 USD, which is a nice 23% move from the low. Their Average Price Target (PT) is $55.19 USD (+33.51%) with a maximum predicted at a potential $67.70 USD (64%) – a great return in anyone’s book. How could we attack this?

Plan

As always, please follow along with the visual guide below. Notice this stock has volatility with lots of little gaps and notably two bigger gaps recently, both due to ER results. From analysis, the passing next orange resistance line will have the stock price enter to start filling that big gap to the left. At the top of the gap, we have one more resistance line before hitting the avg PT of $55.19 USD noted above, at which the stock would be fully valued and any price action above that is gravy. Using support / resistance lines profit could be taken or at the very least stops being updated past the targets at $43.85, $46.88, $51.25, $53.63 and $55.19 (USD) to secure some profits.

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RISKS

YUMC does yield a dividend of 1.26% ($0.16 USD per share) with an ex-dividend of March 4th, 2024. More a rule than an exception is that a slight pullback in the price action is expected right after the dividends are allocated. A more conservative approach would have entry waiting until after this expected potential expected pullback. Make sure to give the trade the time it needs to be successful, while setting and updating limits to mitigate risks and exit points for the position if necessary.

Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.

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