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Takeaway: We are adding YUM to Investing Ideas.

Note: The excerpt below was written earlier this morning by Hedgeye CEO Keith McCullough. Stay tuned for more details from our Restaurants sector head Howard Penney.

YUM: Adding Yum! Brands to Investing Ideas  - y7

In staying with the process, another Macro Exposure we want to be adding to (on down days, oversold signals, etc.) is Big Cap Liquidity (vs. Small Cap Illiquidity, in Russell 2000 #bubble terms, on the short side).

From a bottom-up perspective, one of our Research Team's Best Ideas (Institutional Research longs and shorts) on the LONG side right now is Howard Penney's bullish view of Yum Brands. And, from a top-down factoring perspective, the other thing I like (at a price) are consumer companies whose cost structure will be the recipient of commodity #deflation.

On YUM specifically, Howard thinks there are three ways you can win on the long side:

  1. The Company is vulnerable to activism
  2. Opportunity for a transformational transaction (for the better part of the past two years, management has been asked about a potential spinoff of the China business).
  3. We also believe there is an opportunity to increase leverage (to repurchase stock or pay a special dividend), cut excess SG&A, refranchise additional restaurants and command a premium valuation.

Buy red, sell green.