By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 7/14/14 Sign up for Cabot Wealth Advisory—it's free!
Baidu (BIDU) is often called the Google of China, and that may be all you need to know about the stock.
Baidu was founded in 2000, two years after Google.
Baidu has annual revenues of $6 billion, while Google has $62 billion.
Baidu grew its revenues at a 59% rate in the latest quarter, while Google grew at a 19% rate.
Baidu grew its earnings at a 24% rate in the latest quarter, while Google grew at a 3% rate.
Thus Baidu is smaller than Google and growing faster.
And most important of all is the fact that the population of China is roughly four times as large as the population of the U.S.—which means that Baidu, one-tenth the size of Google today, is almost guaranteed to be larger in just a few years!
So let’s look at the chart. For the first five years of its life, BIDU was a hot stock, very volatile (mostly on the upside) and trading at nosebleed valuations—its PE topped 50 at some point in every year until 2012. But in recent years it’s calmed down a lot.
First, from mid-2011 through mid-2013, there was a prolonged decline that slowly wore out uncommitted investors. Then there was the rebound in the second half of 2013; it rewarded investors/traders who were nimble—but it didn’t last. 2014 brought a renewed consolidation phase that took the stock down as much as 23% at the low of the growth-stock correction. Since the market’s April bottom, however, BIDU has rallied back with the broad market. Two weeks ago, it broke out above 190, to all-time highs. And now it’s pulled back a little.
I recommend that you take a no-risk subscription to Cabot China & Emerging Markets Report, which is where Paul Goodwin originally recommended BIDU (last July when it was trading at 110). If you do, you’ll not only get regular updates on BIDU, you’ll also get Paul’s thinking on all the best China stocks.
By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 6/24/14 Sign up for Cabot Wealth Advisory—it's free!
My stock pick for the day is an old friend of Cabot China & Emerging Markets Report. We’ve had it in the portfolio since July 2013, and our position has jumped from 110 when we bought to 183 in today’s market.
But I’m recommending it again here because, after six months of trading sideways, mostly between support at 150 and resistance at 180, BIDU is on the move again. It hit an April low below 145, but began a new rally in the middle of May that has led it close to all-time highs. I wrote the stock up recently in Cabot Top Ten Trader as one of the 10 strongest stocks of the previous week. Here’s what I had to say.
“Why the Strength: Baidu is probably the best-known Chinese stock in the U.S., partly because of its snappy nickname, “The Google of China,” and partly because it has enjoyed some huge price appreciation in the past. Baidu is a provider of Chinese-language search services and the company legitimately vanquished Google in head-to-head competition in China. But Baidu makes money the same way Google does, by selling ad-words and general advertising access to users. Baidu has been challenged in recent years by the upstart Qihoo 360, a small company that grabbed a significant market share in mobile search services by leveraging its popular mobile browser. It took Baidu a while to respond, but the company has used its large cash reserves to develop its own mobile anti-virus products (to counter Qihoo 360’s foundation) and by acquiring 91 Wireless, a popular Chinese app store, in July 2013 for $1.9 billion. Baidu has been hit by the general unpopularity of Chinese stocks, but it has also emerged as a core holding for anyone interested in emerging markets investing. The company’s most-recent quarterly report showed a 59% increase in revenue (an acceleration from prior quarters) and a 25% jump in earnings, the biggest bump in EPS in over a year. Baidu looks to be back on track.
“Technical Analysis: BIDU went into a correction in July 2011 and fell from 166 to the 80s in early 2013. But July 2013 brought a strong rebound that kicked to stock to above 180 in January 2014. Since that peak, BIDU spent a couple of months trading in a range with support in the 140–150 area before investors moved in again. BIDU is now back in the high 170s and is enjoying the improved climate for Chinese stocks in the U.S. BIDU looks like a good buy on any weakness, with a stop at 160.”
To learn more about BIDU and other emerging markets stocks that are poised to break out, take a risk-free trial subscription to Cabot China & Emerging Markets Report. In it, you’ll learn all about the high-potential growth stocks I’m following all over the world. Find out why now is the best time to invest in emerging markets.
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By Paul Goodwin, Chief Analyst, Cabot China & Emerging Market Report
From Cabot Wealth Advisory 2/4/14 Sign up for Cabot Wealth Advisory—it's free!
My stock pick for the day is a Chinese stock you’ve probably heard of. It’s Baidu (BIDU), a company that’s often called “The Google of China.”
Baidu is the dominant Chinese-language search engine, and it makes money in exactly the same way Google does, selling ad words to advertisers who want access to people who are searching particular topics.
It’s a lucrative business, and Baidu’s earnings have soared from 66 cents per share in 2009 to $4.84 in 2012. Revenue in the same period is up from $651 million to $3.55 billion.
In some ways, Baidu has fallen victim to its own success. Investors stopped believing that the company could continue to grow at such high rates and sent the stock into a correction that lasted from August 2011 to April 2013, pulling the stock from 166 to 83.
But once BIDU got moving in July 2013, it soared to 140 in just four weeks. And its advance continued to 174 in January.
The global slump in stocks had BIDU at 149 on Monday, but soon there will be a big day for the stock. Baidu will report earnings any day now, and if the news is good, this recent correction will make the stock a great bargain. Analysts are expecting EPS of $8.21 for Q4 and $30.45 for the year. Revenue is estimated at $9.23 billion for Q4 and $31.6 billion for the year.
I don’t favor buying ahead of earnings; it’s too much of a coin flip. But if the reaction to Baidu’s news is positive, it will be a great opportunity to jump in early. This is a Chinese stock with plenty of horsepower.
To receive further updates on BIDU as well as additional high-potential emerging markets growth stocks, click here.
Baidu (BIDU): Growth and Value Stock
By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 11/23/13 Sign up for Cabot Wealth Advisory—it's free!
If you’ve been following my series on stocks that have attractive points for both growth and value investors, you’ve read seven stories of companies that are fundamentally sound and have momentum in their pricing.
Today, I’m going to serve up a company that has appeared not only in Cabot Top Ten Trader, but is also in the portfolio of Cabot China & Emerging Markets Report, the investment advisory I write.
The company is Baidu (BIDU), “the Google of China.” Baidu is a perennial subject for Top Ten, having been featured a total of 22 times since it debuted in January 2007! (That’s a pretty good testimonial all by itself, since stocks find their way into Top Ten only if they have top-notch price action.)
Baidu grew to be a $44 billion company (in market capitalization) by understanding the Chinese language better than its competition (including Google). Baidu also offered Chinese Web surfers a chance to use a Chinese company, which isn’t negligible in making a search decision.
As you will read in the company’s latest Top Ten writeup (September 30) below, Baidu stumbled a bit in making the transition from PCs to mobile devices, but that problem seems to be behind it.
Baidu (BIDU 135)
"Baidu, which is making its 21st appearance in Cabot Top Ten Trader, qualifies as an Old Friend if any Chinese stock does. The story of Baidu’s dominance of the Chinese search engine business is well known, including how it kicked Google’s hind end by offering a better understanding of the Chinese language and giving better search results. The company has never relinquished that dominance in the PC world, but it took some time for it to respond to the challenge of search on mobile devices. The number of Chinese users on PCs has held steady, but many Chinese are now using mobile phones and tablets as their primary means of accessing the Internet. In August 2012, when Qihoo 360 began offering search on its popular mobile website (see the July 8 issue of Cabot Top Ten), investors saw a potential challenger to Baidu’s preeminent position as the Chinese search engine of choice. It took a while for Baidu to organize a response, but the announcement that it would pay $1.9 billion to acquire 91 Wireless, the second-largest mobile app store in China, was a great comfort to Baidu’s investors. The 91 Wireless acquisition will mean an immediate boost to Baidu’s wireless traffic, answering the Qihoo 360 challenge. Baidu has been a model of both revenue and earnings growth, with earnings forecast to increase from the $4.84 in 2012 to $5.05 this year and $6.27 in 2014. Baidu has earned its position as a core holding for investors in China".
Buy Range: 130-135
Baidu is still being rated a “HOLD” on page 12 of Cabot Top Ten Trader.
So, what’s the value case for BIDU? In the latest issue of Cabot Benjamin Graham Value Investor (November 5), Roy Ward gives the following terse numbers to summarize. (I put it into a paragraph.)
"Baidu (BIDU), which is trading at around 160, looks like a good buy at a maximum price of 115.27. If the stock advances to 215.12, which is its minimum sell price, it should be sold. The company’s estimated earnings growth over the next five years is 23%. The current price to earnings ratio for the stock is about 32, which is a bit high. While the stock is well above its maximum buy price, it’s also well below its minimum sell price, so there’s still the potential for price appreciation. And since BIDU doesn’t pay a dividend, a rising price is what we’re looking for.”
So, that’s the growth/value case for Baidu. BIDU made a huge run last summer, soaring from 90 in July to around 140 in August. After consolidating for five weeks under resistance at 140, BIDU made another move in September, climbing to 160 by the beginning of October. Since then, BIDU has been trading sideways as investors try to sort out the future of China and its economy.
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 6/10/13 Sign up for free Cabot Wealth Advisory
My stock for the day is no stranger to anyone with a passing interest in emerging market stocks. It’s Baidu (BIDU), the dominant Internet search engine in China, and still a potentially explosive stock. But it’s no slam dunk.
BIDU was one of the hero stocks of the late naughts, streaking from 10 in early 2009 to 166 in July 2011.
Baidu’s story is a great illustration of the truism that when everything is perfect, anything that changes is something gone wrong. But it’s not easy to figure out exactly what Baidu did that qualified as wrong.
In 2009, the year Baidu began its amazing run, the company experienced a 40% jump in revenue. In 2010, that rose to 81% growth. And in 2011, the year that Baidu’s stock began its long swoon, revenue growth rose again, this time to 92%!
Earnings were also very strong, stepping up from 66 cents per share in 2009 to $1.55 in 2010 to $3.03 in 2011 and $4.84 in 2012. Lots of companies would be thrilled to have numbers like that.
So why did BIDU, a paragon of revenue and earnings growth and the 800-pound gorilla of the Chinese search market, experience a nasty bumping correction that had it trading at 83 on April 5? Part of the blame goes to investors’ perceptions of China, which refuses to allow U.S. regulators to examine the books of Chinese companies. Some of it can be traced to the back-door listing scandals and reporting irregularities on the part of a few Chinese companies.
Another big reason for BIDU’s fall is investor fatigue. The stock went up until there weren’t any more buyers left, which meant that it had to come down. Valuations got high and the company missed analysts’ consensus numbers in a couple of quarterly reports.
The stock also got dinged last summer when Qihoo 360 (QIHU), an upstart mobile security company, suddenly nabbed a 10% share of the mobile search business in China. The market share came mostly from Google, not Baidu, but it put a dent in the perception that Baidu owned the market, and that’s never a good thing.
BIDU has made good progress since its April bottom. It’s now trading over 100 and buyers have even spiked its volume up a bit.
At a reasonable (but not cheap) P/E ratio of 21, the stock is showing some muscle.
I know from looking at institutional sponsorship that BIDU is still a part of virtually every portfolio that allows exposure to emerging market stocks. Baidu is considered a market leader and BIDU is a core holding for any long-term buyer of emerging issues.
Do I recommend it for you? Well, I think a small buy with a long investment horizon (at least a year) makes a great deal of sense.
Try to get in under 100 and keep an eye on the stock in late July when Q2 earnings results come in. More details.
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 7/16/12 Sign up for free Cabot Wealth Advisory e-newsletter
My stock pick today is an old friend that has fallen on hard times, at least as far as its stock price goes. The company is Baidu (BIDU), the dominant Internet search engine in China. Roy Ward, the editor of Cabot Ben Graham Value Report, our value investing newsletter, recently sent me a memo making the value case for BIDU.
Roy pointed out that, although BIDU’s P/E ratio is a relatively high 24 times estimated earnings, its price-to-earnings-growth ratio (PEG ratio) is an attractive 0.70 based on 35% expected EPS growth during the next five years.
While it’s always comforting for a growth investor to get a concurring opinion from a value guy, I have two independent reasons for liking BIDU.
First, the revenue and earnings growth history for Baidu is ridiculously strong. Baidu’s revenue growth slowed to 40% in 2009, but rebounded to 81% in 2010 and climbed to 92% in 2011. In those same three years, earnings grew from 66 cents per share to $1.55 per share to $3.03 per share. Estimates for 2012 are for $4.58 per share. The company has eight straight quarters with after-tax profit margins above 40%.
The knock on BIDU right now is that Chinese search activity is migrating to mobile devices at an increasing rate, giving competitors without a big online infrastructure a way to compete in a new arena. That fear, plus the general concern about slowing Chinese economic growth, has pulled BIDU from its most-recent high of 154 to below 110, a dip of almost 30%.
I’m waiting to see what BIDU will do when the Chinese government, taking advantage of its benign inflation statistics, decides to use its treasury for a little economic stimulus. The current Chinese GDP growth rate of “only” 7% is a little lower than Beijing would like to see. Such a stimulus, plus the intriguing prospect of Baidu’s new tie-up with Apple, would make BIDU an excellent choice for either a value investor or a growth investor with a slightly longer time horizon.
By Elyse Andrews, Editor of Cabot Wealth Advisory
From Cabot Wealth Advisory 10/30/10 Sign up for free Cabot Wealth Advisory e-newsletter
Recently, I read that the number of Internet users will surpass two billion—or about 30% of the world’s population—by the end of 2010. That’s according to a new report by the International Telecommunication Union.
In 2010 alone, there will be 226 million new Internet users, with the majority coming from developed countries. Regionally, 71% of people in developed countries are online, while only 21% of the population in developing countries, many of which are emerging markets, are online. Even more specifically, 65% of Europe is online, 55% of the Americas, 21.9% of Asia/Pacific regions and less than 10% of Africa.
That leaves a lot of room for growth!
And nowhere is that growth more evident than in China, where Baidu (BIDU), that country’s leading search engine, has taken off in 2010.
Baidu was first recommended by Cabot China & Emerging Markets Report in July 2009. This is part of what Editor Paul Goodwin had to say then:
“Baidu is the dominant Chinese-language search engine in China, with a market share that hit 65.8% in 2008. (Google was second with 22% and Chinese rival Sogou was a distant third with 2.9%. Yahoo! was an even more distant fourth.) It is now the third-largest search engine in the world. For a company incorporated in 2000 and limited almost entirely to operations within a single country, this is a remarkable record.
“Baidu has built its towering advantage over its powerful competitors by being both imitative and innovative. The imitative part of the Baidu strategy is its total adoption of Google’s paid keyword search as its revenue model. The company offers most of its services free of charge, and gets 99% of its revenue from online marketing services. Earnings, which turned positive in 2004, have been growing at an astonishing rate.
“Baidu’s future growth is expected to come from the growth of the Internet in China. Despite the controls and restrictions demanded by the Chinese government—mostly aimed at pornography and politically sensitive topics—the Chinese people are taking rapidly to life online. China now has more people online than any other country in the world (221 million in early 2008) and estimates put the growth rate at 18% per year, with a target of 490 million users by 2012. (We note that that’s more Internet users in China than there are people in the U.S.)”
And things have only gotten better since then. Paul’s subscribers bought the stock at a split-adjusted 32 and currently have profits of about 250%! You could buy the stock here and hope for the best, or you could check out Cabot China & Emerging Markets Report, the #1 newsletter for the last five years, for details on what Paul is recommending today.
Editor of Cabot Wealth Advisory
Elyse Andrews edits Cabot Wealth Advisory, a free email newsletter that offers independent, no-nonsense investment advice on how to build long-lasting wealth written by Cabot's analysts and editors. Every Saturday, Elyse writes the Weekend Digest, which includes her column and a summary of Cabot Wealth Advisories that readers may have missed during the week. Elyse is also a regular contributor to The Iconoclast Investor, a blog for Cabot editors and readers to share their views and interact with each other.
From Cabot Wealth Advisory 4/9/10 Sign up for free Cabot Wealth Advisory e-newsletter
Today, I'd like to write about Google (GOOG) and Baidu (BIDU).
Google, of course, is the king of Internet search, with revenues of $24 billion.
Baidu is far less known in the U.S. But in China, it was the number one search company last year, serving perhaps 74% of the market. Google was #2.
Last month Google pulled out of China, after revelations of censorship, and government hacking of emails. The company's unofficial motto, remember, is "Don't be evil."
And that leaves virtually the entire Chinese Internet search market to Baidu! (Sogu was #3 last year, with a 3% market share, not a worry).
Is this a good investment opportunity? I think so.
Look at it this way.
Google, while still a youngster compared to U.S. technology graybeards like Microsoft and Intel, has grown slower as it's grown bigger. Revenues in 2009 grew only 9% (the company will do a little better this year as the global economy recovers).
But Baidu is still a young kid, with revenues of just $651 million. Last year it grew revenues 40%, and it's bound to grow much faster this year.
In my book, that makes Baidu a better investment. And the fact that Baidu is far less well known and respected (there's bigger potential buying pressures as investors discover the story) only adds to the attraction.
In fact, while more than 900 mutual funds own Google, just over 200 own Baidu.
Finally, consider the fact that China has more than 1.3 billion people, more than four times the U.S. As China gets richer, more and more of those people will be going online and using Baidu.
Conclusion, in the years ahead, Baidu will become huge!
Knowing that was just one of the reasons that Paul Goodwin, editor of Cabot China & Emerging Markets Report, recommended Baidu to his subscribers last July. Today, they're looking at profits of 95%. For more information on click here: Cabot China & Emerging Markets Report.
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Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
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6/24/14 Baidu (BIDU): On the Move Again
2/4/14 Baidu (BIDU): The Google of China
11/23/13 Baidu (BIDU): Growth and value stock
6/10/13 Baidu (BIDU): Showing some muscle
7/16/12 Baidu (BIDU): The dominant Internet search engine in China
4/9/2010 Baidu (BIDU): King of China's Internet Search
10/30/10 Baidu (BIDU): Future growth will come from the growth of the Internet in China