Baidu Stock: Starting to Look Really Attractive

The past year has really been quite a terrible time for investors in any Chinese-based stocks. A major contributing factor to the declines we’ve seen among most Chinese tech stocks is a harsh crackdown from Chinese regulators on this sector. Among the top-tier Chinese tech stocks that got embroiled in this market madness has been Baidu (BIDU).

This Chinese tech crackdown started with the $2.8 billion antitrust fine levied on Alibaba (BABA) in April. However, other tech giants saw similar reprimands, with DiDi’s (DIDI) ridesharing app taken off the Chinese App Store, an anti-private education stance taken by the CCP which killed tutoring stocks, and video game restrictions hampering companies like Tencent (TCEHY).

Baidu has largely escaped the wrath of the Chinese government thus far. However, being grouped in with the Alibaba’s and Tencent’s of the world has provided little investor enthusiasm for this stock.

In other words, there are many reasons to be bearish on Baidu. That said, I’m one of the few bulls on this stock. Here’s why Baidu may be one of the best Chinese stocks to consider right now.

Baidu Stands Strong Despite Regulatory Headwinds

Since peaking last February at more than $350 per share, investors now have the opportunity to pick up BIDU stock at around $153 per share. This drop of well over 50% is one that looks even more attractive when investors consider Baidu’s prospects.

First of all, Baidu has been able to skirt most of the regulatory headwinds from Chinese regulators. The company hasn’t been fined and hasn’t been outright targeted for anti-monopoly or corruption-related issues. This is a good starting place for investors seeking Chinese growth stocks with favorable forward-looking prospects.

Secondly, Baidu’s core search business model, as the “Google of China,” provides a relatively defensive opportunity for investors seeking growth. Baidu’s growth rate for its core business isn’t as attractive as its peers. However, this company’s cash flows are defensive, and this sort of fundamental stability is what many investors seeking emerging market growth stocks want to see.

Additionally, Baidu is so much more than a search engine. This company is more like a conglomerate of tech-related projects, with a “Google-like” business model at its core. Indeed, Baidu’s autonomous vehicle program and a range of other ancillary growth businesses provide investors with real value over and above this core search business.

That said, valuing Baidu on the basis of its core business, this stock looks fundamentally attractive. From a market share perspective, Baidu is estimated to control roughly three quarters of the overall Chinese search market. That’s incredible. Those bullish on advertising growth in China will like how Baidu is positioned.

Accordingly, Baidu remains a higher-risk but high-upside bet on the Chinese economy. This is certainly an economy with risks right now, as seen with the Evergrande crisis and slowing growth. However, this is also the world’s second-largest economy, which many believe will be the top economy in the world by the end of this decade.

Baidu is positioned well for forward-looking investors willing to ignore this near-term noise.

Wall Street’s Take

Turning to Wall Street, Baidu comes in as a Strong Buy. Out of 11 analyst ratings, there are 11 Buy recommendations. 

The average Baidu price target of $253.36 implies 65.4% upside potential. Analyst price targets range from a high of $330 per share to a low of $175 per share. 

Bottom Line

Investors looking for high-growth options in China ought to consider Baidu at these levels. A company that provides value on its search business alone, there are many avenues for growth that remain undervalued. As Baidu grows its market share in AI, cloud services, autonomous driving, and other business segments, investors stand to win.

Indeed, this is a company that has the makings of a sustainable, long-term, core portfolio holding.

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