Growth and Value Stock: Baidu

Stock Market Video

Growth and Value Stock: BIDU

This Week’s Fortune Cookie

In Case You Missed It


10 Best Stocks for 2014

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In this week’s Stock Market Video, Mike Cintolo contrasts the general good health of the market with the mundane performance of many leading growth stocks. The message is that it’s still a time to be generally bullish, but paying attention to risk factors is just as important. A little selective buying is fine, especially among some dependable growth stocks, as well as some smaller issues that have come to life. But it’s best to hold some cash and wait for growth stocks to make a decisive move up or down.

mike cintolo

Growth and Value Stock: Baidu

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.

In next week’s issue, I’m going to wrap up this growth and value series with a big double-dip issue, highlighting two stocks that can put a gleam in the eye of both growth and value investors.

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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

Fortune Cookie Cabot Heritage

Tim’s Comment: For most investors, success in investing increases the desire to invest, by boosting self-confidence and reducing defensive mechanisms. That is exactly why every market movement goes too far to the upside, and that is exactly why it will always be so.

Paul’s Comment: Getting the right balance between optimism and caution is probably the hardest thing for growth investors. Sometimes, when markets are on a tear and stocks are soaring like skylarks, keeping caution alive seems silly! But it’s not. It’s the same problem as keeping your optimism healthy as markets are hitting the depths. Contrary thinking isn’t an abstract concept in the markets, it’s a survival skill.

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 11/18/13—HomeAway (AWAY): A Stock That’s Going Up

Cabot Stock of the Month top-kick Tim Lutts works his way through trivia, statin drugs, a tech conference in Antwerp and the Obamacare rollout and to arrive at some conclusions about expertise. He presents his Rule #1 for growth stock buyers (If it’s not going up, don’t buy it). Stock discussed: HomeAway (AWAY).

Cabot Wealth Advisory 11/19/13—A Brand-New Me-Too Strategy

Robin Carpenter, top guy at Cabot ETF Investing System, writes about a new “copycat” investment index that tracks the holdings of 10 billionaire investors. The index has been back-tested to eight years ago and shows excellent performance vs. the S&P 500.

Cabot Wealth Advisory 11/21/13—The New Leader in the Aerospace Boom

In this issue, Mike Cintolo of Cabot Market Letter describes a strategy for achieving truly outsized stock market gains for those with a taste for doubling down on wins. Mike says to “lean bullish,” but keep your parachute handy. Stock discussed: Spirit AeroSystems (SPR).

Have a good weekend,

Paul Goodwin
Chief Analyst of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory


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