3 Stocks To Buy For The Rebound In Chinese Internet Stocks

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 |  Includes: BIDU, DANG, RENN, SINA, SOHU, YOKU
by: BubbleBustInvesting

For more than six months, Chinese Internet stocks have been threading water, dragged down by tight monetary policy at home, a looming trade dispute between the U.S. and China, accounting irregularities among some of the U.S.-listed companies, and a momentum shift. Youku's merger with Tudou Holdings recently is a game changer for the industry, as it signals a determination by the leadership of these companies to enhance shareholder value. But which stocks offer the greatest potential?

As we wrote in previous articles, investors should stay away from industries and companies that undergo a momentum shift. Yet long-term investors may want to search for gold in the trash, trying to identify a 'Chinese Amazon.com'. As indicated from the table below, Baidu, Inc. (NASDAQ:BIDU), Sina Corporation (NASDAQ:SINA), and Sohu.com Inc. (NASDAQ:SOHU) are three good choices for such strategy. They display solid fundamentals and are trading at a reasonable price. Baidu, for instance, has a PE of 21.18, while it enjoys a hefty 52.25% operating margin. Sohu.com has a PE of 10.45, while it enjoys a 33.20% operating margin.

Company*

Business

Forward PE (December 2012)

Operating Margin (%)

Baidu, Inc. (BIDU)

Internet search engine

21.18

52.25

Sina Corp (SINA)

Media and mobile value-added services

45

7.32

E-Commerce China Dangdang Inc. (NYSE:DANG)

Business -to-Consumer e-Commerce

-

-7.86

Renren Inc (NYSE:RENN)

Social Networking

-

-23.60

Youku (NYSE:YOKU)

Internet TV

-

-18.41

Sohu.com Inc. (SOHU)

Brand advertising, on-line gaming

10.45

33.20

Click to enlarge

Source: Yahoo.finance.com

* These statistics should be interpreted with caution, as Chinese accounting standards are different than those of the U.S. So they aren't comparable with those of their U.S. counterparts like Amazon.com (NASDAQ:AMZN) and Google (NASDAQ:GOOG).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.