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John Mylant
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Residing in Colorado Springs, Colorado. Has been trading and coaching using a self-developed option trading system for 10 years. Philosophically conservative, accurately trades weekly options with a strong risk management approach. Well sought after by investors around the world, he teaches a... More
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  • BIDU a Potential Great Long Term Investment 1 comment
    Oct 10, 2011 8:01 AM | about stocks: MSFT, SOHU, YOKU, DANG, BIDU

    Earnings for BIDU is coming up on Monday, October 17th., and this is a stock investors should considering taking a look at for a long term investment or option play.

    There is a whole lot of interest in Baidu (BIDU) presently as there should be with the potential growth that could be on the horizon. Being China's 'Google' explains what the company does. The internet search engine offers among other things, various types of searches including pay for performance.

    At Barclay Capital, they are projecting a significant growth in online paid advertising in the future. This will significantly help BIDU. Proportionately, more advertising is still directed toward T.V. Barclay Capital report states: 39% of advertising is controlled by TV while 27% is online-- even though 47% of leisure time is spent by the Chinese online while 12% is spent in front of the TV. The journey of advertising dollars to the internet is a natural outcrop of these stats.

    The research that has gone into "paid search" expects rasid growth and BIDU has always been poised to take advantage of market movement and opportunity. It continually tries to keep uses by improving the search experience and developing products for its Chinese users. Keeping users through service, experience, and the development of products has helped create the 'habit' of using BIDU. Once a user becomes familiar with the search engine, they are not going to change quickly.

    Considering it has held up to 62% of the Chinese market, if it can hold its share, growth in internet advertising should increase proportionately as the number of Chinese users and online spending increases. China has about 485,000,000 internet users today and that number is projected to be as many as 625 million by 2014.

    A recent partnership with Microsoft's (MSFT) Bing search engine should now give them access to the large English language segment they needed. Right now with the stock selling at a 36% discount from its one year high you might want to consider this high flyer.

    So there is a lot of upside potential for a long-term investment in BIDU.

    But before one enters into an investment, there are some concerns that we should also consider-- two in particular.

    First, the US Government (Justice Department) has been investigating accounting errors in Chinese companies listed on the US exchanges. Scott Kessler, an S&P analysis, cut the target price of BIDU from $200 down to $150 because of this increased risk. Risk has increased, but he still calls them a "...well established company." There are a number of other Chinese Internet companies trading on the US exchange like-- (SOHU), (YOKU), and (DANG). It is believed that the investigation will be more challenging to these smaller companies than it will to BIDU.

    The second thing we need to consider is the intervention of the Chinese government in regulating these internet companies. It is tightening enforcement rules that allow foreign ownership in Chinese companies as well as listings on the US exchanges.

    Between the US Justice Department, the Chinese government, and there always is the possible meltdown of a hot Chinese economy-- these are considerations to look atbefore investing.

    When and how to invest in BIDU--
    BIDU will come in Monday with expectations of EPS around $0.93. With volume and money still on the decline, we would really like to see BIDU break through resistance with the number of investors who are taking an interest in the company.

    While the stock is bearish, we would like to see some strength in interest before we invest in the stock and hold it. We believe it has great long term potential for growth but it is not yet time to get in until we can define some strength in bullish desire. So far we have not been able to define it. We are looking for strength in breaking through certain resistance levels. OBV is one fo them.

    Long Term Options--
    There is significant resistance around the 150 level. Look into December for a safe Debit spread. Possibly buying the 150 and selling the 155.



     



    Disclosure: I am long BIDU.
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    14 Oct 2011, 02:35 PM Reply Like
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