Resilient Consumers May Keep this Sector Trending Higher

Consumer spending shifted last year, with customers opening up their wallets to buy more services like travel and tourism. As a result, less money was available for goods.

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  • That trend looks likely to continue. And until it shifts back, spending on dining out at restaurants looks like a trend that will push even higher, even amid concerns of an overall consumer spending slowdown.

    Restaurant stocks fared well last year. And those that offer reasonable prices can likely continue to improve this year. That includes Yum! Brands (YUM), owner of chains such as KFC and Taco Bell.

    The company should benefit if consumer spending continues higher, or if there’s a shift in spending to lower-priced chains.

    Yum Brands has had a quiet year, with shares essentially flat, even as the low-priced chain managed to make a massive 21 percent profit margin.

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  • Action to take: Yum shares are fairly valued at 22 times forward earnings, and the chain’s relative underperformance last year could lead to better returns this year. At current prices, Yum pays a 1.9 percent dividend.

    For traders, shares have been trending higher since early October, a trend likely to continue in the months ahead. The June 2024 $135 calls, last going for about $4.20, could see mid-to-high double-digit returns in the months ahead on a continued rally.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any companies mentioned in this article.

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