Baidu (BIDU) is perhaps the most followed Chinese stock. And given the stock's wide following, it would be an injustice to both the company and the readers to introduce Bidu. So cutting to the chase, this article presents 4 reasons why we believe Bidu is getting into a "strong buy" zone.
Historical Valuation: Bidu is trading at its lowest earnings multiple since the 2009 crisis and is just a few points from reaching that level. The chart below shows the PE over the past 5 years. Agreed, Bidu's growth rate is probably not going to be as high as it was say 5 years ago but it is still growing at nearly 50%, which makes its current valuation pretty attractive.
Bidu's PEG sits at 0.58. As a comparison, the other undervalued growth stock Apple (AAPL) has a PEG of 0.52. That is not a bad number at all for a company that is often deemed as "overvalued".
(source: Ycharts.com)
(Click to enlarge)
Technical Indicator: Bidu is well into the oversold territory according to the Relative Strength Index (RSI). Agreed, the overall market has been hammered and stocks with high Beta do get hurt more, the chart below shows an RSI of 13, which indicates terribly oversold. When the market starts reversing into the positive side, expect Bidu to take over its role as one of the market leaders.
(Source: Nasdaq.com)
(Click to enlarge)
Price Targets:Taken with a pinch of salt, Analyst price targets are useful in determining where a stock is headed in the near term. Stocks like Bidu certainly need the support of the money managers and funds to have a strong run. And higher analyst targets indicate the "big boys" do have positive expectations from the stock in question. Bidu's average price target is $185, a good 60% from the current price of $115.
SmartPhone: Bidu is expected to enter the "value" smartphone Chinese market. And given Bidu's brand name and reputation, one can safely assume obtaining market share should not be a problem. This move is very smart on Bidu's part, as smartphone usage is still in its early stages in the world's largest market and the pricing range is right where a majority of the population will be comfortable with. And given what happened to Google (GOOG) in China earlier, who knows what would happen to other companies like Apple in China if Bidu's smartphone business takes wings.
Conclusion: So, there you have 4 reasons why Bidu might be a good addition to your portfolio at the current price level of $115. And given the markets downtrend and the summer swoon, it may not take long for Bidu to reach the $100 level, which would be a steal.
Disclosure: I am long AAPL. May start buying Bidu at $100
