Van Meerten's picks

Financial Tides is going out on a limb and thinks this stock still has room to grow. Baidu, Inc. ( BIDU ), formerly Baidu.com, Inc. is a Chinese-language Internet search provider and is based in Beijing, the People's Republic of China. The company offers a Chinese language search platform and conducts its operations principally through Baidu Online Network Technology Co., Ltd. , a network of third-party Web sites and software applications. Further, the company offers Japanese search services, including Web search, image search, video search, and blog search capabilities. It also offers online marketing services to its customers directly and through other distribution networks.

Before you all jump on me and talk about the impossibility of sustained growth and the 59 times EPS ratio let me interject my reasoning. In China and the Asian continent in general Google and Baidu are not on a level playing field. Google just doesn't seem to know how to play ball in Asia. They are trying to use western rules in an eastern game and fail to realize all the referees are hometown Chinese boys.

The Chinese government will make sure Baidu succeeds in China no matter what. They have over 1/2 of the world's population and are doing much better than we are in Africa and the Middle East. Baidu even has a Japanese search engine: http://www.baidu.jp/.

Everyday more and more analysts are initiating coverage of this stock and now even Value Line has picked up this stock and rates it #1 for timeliness.

I'll let other tell you all the negatives and I'll explain what the stock has going for it.

As I've said more and more firms are beginning to follow this stock with 21 already on board with 13 buy and 8 hold recommendations released. The numbers they project are all most too good to be true. They look for increases in sales of 66.70% this year and 51.70% next year. Even more aggressive EPS growth is forcasted with an EPS increase of 92.10% this year, 55.40% next year and a 5 year compounded growth rate of 44.89%. Presently trading around 69 they have a 74 to 78 price target. Total return for the past 3 years has been 466.7%!

There is a big investor sentiment on Motley Fool with the CAPS members voting that the stock will beat the market by a vote of 3,286 to 642 and the more experienced All Stars voting 857 to 178.

For technical coverage Barchart notes a price pull back lately but still has 10 of their 13 technical indicators signaling buy for a 72% technical buy signal. Even with the pull back the stock went up 13.92% in the last month and hit new highs in 8 of the last 20 trading sessions. It trades above its 20, 50 and 100 day moving averages at around 69.54 with a 50 day moving average of 63.61.

Here are the pros and cons:

Pros --

High investor sentiment and more firms initiating coverage every week

China will control Internet access to over 1/2 of the world's population -- I empathize CONTROL

Baidu is a Chinese hometown boy

Wall Street predicts high double digit growth in sales and earnings

Presently selling at 69 with Wall Street targets of 75 to 78

72% Barchart technical buy signal

Cons --

59 times PE ratio

For those of you that subscribe to the bigger fool theory even you can see there is a lot of interest in this stock and a lot more fools are jumping on board every day. Don't bet the farm on this stock but don't ignore it either. Buy a little bit and put a moving stop loss at the 100 day moving average and you should be alright.

Jim Van Meerten is an investor who blogs on investing on Financial Tides and Barchart Portfolio Blogs. Please leave a comment below or email JimVanMeerten@gmail.com

Disclosure: No positions in BIDU at the time of publication

Comments: View Comments |  Wednesday May 19, 2010