Dear Mr. Berko:
I’m a 46-year-old woman and just beginning to make some decent money. I know you don’t like Yahoo or Microsoft, but a friend told me that Microsoft will buy Yahoo. Nothing is certain, but do you think Yahoo may be a good speculation? Would you buy it? Also, what do you think of Yum! Brands? I recently came back from China and saw several Pizza Huts and KFC units in two large cities, and they were all busy. Do you think Yum! Brands is a good long-term buy like, say, a stock I could hold for 20 years? If you approve I’d like to buy 300 Yahoo and 100 Yum! Brands.
N.E., Wilmington, N.C.
Dear N.E.:
Yes, you are right; I don’t like Yahoo (YHOO-$15.89), though I may be wrong. And yes, you’re right; I do not like Microsoft (MSFT-$28), but again, I may be wrong. Usually, two wrongs don’t make a right, but in this instance, they might. And because MSFT needs a testosterone infusion to get its corpus “offits” duff, I think there’s a 55 percent to 75 percent degree of probability that MSFT could buy YHOO this year between $21 and $23. So yes, I’d be a speculative YHOO buyer.
However, if MSFT doesn’t make a second try at YHOO (it offered $32 in February 2008), there are several private equity pirates such as Kohlberg Kravis Roberts, Blackstone and Silver Lake Partners, each of whom have a takeover strategy in place. Of the three pirates, I think KKR may have the upper hand because co-founder George Roberts is friendly with YHOO co-founder Jerry “Ying” Yang.
There’s even credible talk that Internet portal AOL is considering a move on YHOO. But AOL would need some serious financing help because its market capitalization is dwarfed by YHOO’s $21 billion cap.
And I’m even hearing that Rupert Murdoch’s giant $33 billion revenue News Corporation (NWS-$16) has an interest. So if a bidding war occurs (which is likely), there may be a bloody feeding frenzy among the omnipresent and omnivorous arbitrageurs. So I think YHOO could be a good 300-share speculation.
I like Yum! Brands, Inc. (YUM-$47.97). This $11 billion revenue company that split 2 for 1 in 2002 and again in 2007 has had nine consecutive years of double-digit revenue and income growth.
YUM, spun off from PepsiCo in late l997, owns, operates and franchises l6,000 KFC units with average sales of $965,000 per unit, 12,000 Pizza huts with $790,000 in average sales per unit and 5,3000 Taco Bells with $1.23 million average sales per unit. YUM also owns Long John Silver’s plus A&W, and as it continues to add new units every day, YUM will also add new employees (it now employs 352,000) every day to the workforce.
I admit to being a YUM food junkie and, unfortunately, tacos, fried chicken and pizza are the top three rankings in my food chain, and I wash it all down with A&W root beer. Long John is good, but I prefer to catch and cook my own fish. YUM’s succulent, toothsome and ambrosial gustables are a fine reason to own the stock.
There are two more valid reasons to become a long-term shareholder: YUM is a “go-to” name for investors seeking global growth. About 60 percent of revenues and 60 percent of profits derive from overseas, particularly China, where YUM has been feeding people for 20 years with more than 3,000 units. This is YUM’s most profitable market, and management hopes to have 20,000 China units in the coming dozen years. YUM’s growing revenues, growing earnings, a growing presence in China plus expansion in Russia, India and France will continue to grow the company.
Finally, YUM’s five-year compounded annual dividend growth of 33 percent should warm the cockles of a long-term investor’s heart. The current $1 dividend yields 2 percent.
However, if future dividend growth is just half that of past dividend growth, YUM will pay a $22 per share dividend in 2031, when you are 66. That’s $2,200 per year per 100 shares and a 45 percent annual return on your cost basis. So yes, buy YUM, too.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
© 2011 Creators Syndicate Inc.
