Baidu (NASDAQ: BIDU) Remains On Track For $300 A Share

As the likes of Alibaba (NYSE: BABA) have found themselves under increasing pressure from Chinese antitrust regulators, other Chinese tech giants like Baidu (NASDAQ: BIDU) have been enjoying their moment in the sun in recent weeks. Only earlier this month we wrote about how Baidu was shaping up for a run towards the $300 level, and they’re still on track to do it.

In the two weeks since they’ve cut down the gap by almost 50% as shares go from strength to strength. The fundamentals that we spoke about then; impressive earnings, a huge share buyback program, and hype around the push into the electric vehicle space, are all still in place today. But fresh fuel has been added in the form of Alibaba’s weakness. The world’s largest e-commerce company has found itself in the crosshairs of a Beijing led anti-monopoly investigation in recent weeks and their share price has suffered as a result.

Shining Star

Having run-up to all-time highs in October, Alibaba shares dropped more than 30% into last week, giving up all their 2020 gains as they did so. While they’ve managed to bounce off the lows this week, there’s a sense that things won’t be the same again for the $650 billion tech giant. For investors looking to get exposure to other Chinese names, the likes of Pinduoduo NASDAQ: PDD who we wrote about yesterday and Baidu are very attractive alternatives.

Even with the recent run in Baidu shares, there’s plenty of reasons for investors on the sidelines to get excited. For starters, their price-to-earnings ratio is still only around the 20x mark, well below the industry average of 30x and its own 40x multiple from 2016. The fact that it was trading closer to 12x as recently as October is hard to credit and helps to explain the insatiable bid seen in shares in the three months since.

Up until the start of last month, Alibaba was outpacing Baidu on the year by 50% to 5%, but the order of battle has since changed considerably. As Wall Street has picked up on Alibaba’s difficulty being other Chinese names’ opportunities, Baidu has jumped more than 60% since then while Alibaba has dropped 25%. This is a crucial swing in momentum that will define how investors carve up their 2021 portfolios. No one likes to own a falling stock, much less buy into one, whilst the opposite very much holds true.

Aiming $300

With this week’s jump, shares now find themselves back in the range where they bounced around for much of 2017 and 2018, when they traded for nearly twice the price-to-earnings multiple they’re now at. At the same time, investors thinking about getting involved should be conscious of Baidu’s RSI; it’s currently within touching distance of 90. While this suggests shares are overbought in the short-term, it should also manifest itself in some profit-taking or at the very least consolidation. The astute investor will have Baidu on their January watchlist and consider any such action to be an attractive entry point.

Baidu just has too many things, fundamentally and technically, going for it to be a bad pick right now. Don’t be surprised if you’re reading another MarketBeat headline in Q1 talking about how Baidu has checked off the $300 level and isn’t looking back this time.