Chart of the Day – $BIDU: What Would Baidu?

by Enis October 21, 2013 11:32 am • Commentary

BIDU has been one of the big winners in 2013.  The chart shows another comeback kid performance that has become par for the course among many high-fliers this year:

BIDU weekly, Courtesy of Bloomberg
BIDU weekly, Courtesy of Bloomberg

The stock’s prior all-time high set in mid-2011 was $165.97.  The stock essentially closed right there on Friday, and gapped higher this morning, but has since moved back below that level this morning.

The short-term battle involves more important support around $160, vs. today’s high as the level to now watch on the upside at $167.55.  For now, the technical picture looks a bit iffy with today’s reversal just after breaking to a new all-time high, but the benefit of the doubt has been with the bulls in this market, so a bit early to call a verdict just yet.

We were bullish on BIDU back in March, with our detailed thoughts in this trade post.  As has been our curse this year, our timing wasn’t great, so we exited the trade with only a small gain, but the technical and fundamental setup was a good one.  However, the stock’s valuation here is almost double what it was just 6 months ago, so we are less enthusiastic.

In the long run, we still view the Chinese internet story as attractive.  Here is what I wrote in my Macro Wrap post in June:

The Chinese government is finally serious about shifting the economy more towards consumption and away from fixed investment.  From a bird’s-eye view, that’s a painful transition.  The large banks, construction companies, industrials, and commodity companies will get hurt.  Individual property investors, who own apartments in empty cities, will get hurt.  International producers catering to Chinese demand will get hurt.

However, there will be winners as well.  The Chinese internet sector will be one of the largest single sources of consumption demand in the world over the next decade.  Relative to developed markets, it is still in its infancy.  The stocks are signaling that investors are willing to provide the sector with capital, despite China’s systemic troubles.

BIDU reports earnings on October 29th.  That will likely be the catalyst that determines whether today’s failure is the start of something more ominous, or simply the latest blip in a major growth story.