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Glenn Rogers is a longtime contributor for BuildingWealth.ca (http://www.buildingwealth.ca). His background is in Media and Publishing and has held a number of senior positions in major magazine and newspaper organizations. He has also successfully partnered with private equity firms to... More
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  • You Can Still Search For Profits In China 1 comment
    Mar 18, 2013 7:25 PM | about stocks: BIDU

    Baidu Inc. (NDQ: BIDU)

    Originally recommended on Feb. 21/11 (#21107) at $122.80. Closed Friday at $85.08. (All figures in U.S. dollars.)

    Baidu is China's equivalent of Google. It is the leading Chinese language Internet search engine, covering nearly 80% of its market.

    The stock was recommended in February 2011 when it was trading at $122.80. After that it moved up to nearly $160 per share and then proceeded to bounce around before starting a steep decline which has taken it to a two-year low of $85.08.

    Apart from being the dominant search engine in China, the company also has a large suite of security software offerings. China has nearly 500 million Internet users and one of the few constants in the relatively new web age has been the success of search engines. Almost nothing comes close in terms of the sheer volume and necessity that they provide.

    Currently, the company is trading at a substantial discount my projected fair market value of $136. The decline in the share price reflects investor uneasiness about the ability of the Chinese to negotiate a soft landing from their real estate bubble as well as increasing competition from Qihoo 360 Technology (NDQ: QIHU). Additionally, there is some question as to whether the search engine business will be negatively impacted by increasing traffic from mobile devices.

    Personally, I think that BIDU will hold on to most of its market share and will continue to grow revenues in excess of 40% in 2013 with earnings per share increasing at a compound annual growth rate of 29% over the next three years. Gross margins are very high, exceeding 70%.

    The company reported revenue of $3.58 billion in 2012, an increase of 53.8% over the year before. Operating profit was $1.77 billion, up 45.9% from 2011, while net earnings were $1.68 billion ($4.79 a share), a 57.5% improvement.

    If all this continues to hold, there should be significant upside in the shares even though the chart looks very scary right now.

    This stock is definitely not for widows and orphans and is highly volatile but there is tremendous opportunity for growth and price appreciation should follow.

    Action now: Buy with a target of $120.

    Disclosure: I am long BIDU.

    Themes: Internet, China Stocks: BIDU
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    Author’s reply » But wait there's more!
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