My subscribers at TradingWithCody.com often ask me about the Chinese Internet stocks, probably because people who read me know I owned Google and Apple from their infancies. Are these guys the next Google and Apple?
Q: I would like your feedbacks on Chinese search engine stocks, such as SOHU, SINA and BIDU. Recently they have huge pullback and just want to see if it is a good time to buy now? Thanks a lot and keep up the good work!
A’s:
- SOHU – It’s a Chinese Yahoo with a wireless edge to it. That is, it’s not exactly the dominant Internet play in China (that would be Baidu), but it does have enough of a burgeoning wireless business that there could be some nice upside to the Street’s estimates, which focuses mostly on the traditional Internet businesses at SOHU. With $10 per share net cash and that wireless edge to it, I like SOHU at its 52 week lows here near $60. Earnings should jump from the mid $4s to the mid $5s, giving a 20% plus bottom line growth rate. With a current forward EV/earnings ratio of less than 10x. Revolution Investment rating: 7/10
- SINA – With $9 per share, $600MM net cash on the balance sheet, this stock would be very interesting to me if it were at about $20 or so. But the company will only earn $1.58 next year. And while that’s a nice growth rate on top of the $1 they’ll earn this year, that’s not enough to get me interested in this also-ran from the China Net world. BIDU is the one I’d prefer.
- BIDU – As their Finance Yahoo description so modestly puts it, “Baidu, Inc. provides Chinese and Japanese language Internet search services.” Man this is a juggernaut of a company, people. Analysts like to call it “The Chinese Google”, but maybe a more accurate way of phrasing it would be to call Google, “The American Baidu”. At $138 per share and with earnings likely to go from less than $3 this year to close to $5 per share next year, the stock is deceivingly cheap. Revolution Investment rating: 7/10
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Cody Willard writes Revolution Investing for MarketWatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody net long Google and Apple.