Baidu, Inc. (BIDU): An Oversold Large Cap Stock To Buy Now
We recently compiled a list of the 10 Oversold Large Cap Stocks To Buy Now. In this article, we are going to take a look at where Baidu, Inc. (NASDAQ:BIDU) stands against the other oversold large cap stocks.
The Fed recently reduced the funds rate by 50 basis points, a decision seen as daring by some analysts, though it has been largely embraced by the market and many experts. The market seems to be on an upward trajectory since the day of rate cuts as the S&P gained over 4.3% on October 14 and closed at another all-time high.
While there are some concerns, experts are quite optimistic that they won’t be of much significance as we discussed in our article about best-performing long-term stocks in 2024. Here is an excerpt from the article:
“Dominic Chu of CNBC expressed concerns about potential market overconfidence, given the calmness amid geopolitical risks, the upcoming U.S. presidential election, and consumer spending challenges. [Gunjan] Banerji acknowledged these risks but emphasized that much of the market’s optimism is tied to the Fed’s actions, with people reassured by the larger-than-expected rate cut.
Finally, Banerji pointed out a broadening of the market rally beyond the tech sector and mentioned the strong performances in sectors like energy and materials, and record highs from companies like Caterpillar and McDonald’s, which indicates a healthier, more diverse market rally.”
The Path Forward for Equities and AI
Noah Blackstein, Senior Portfolio Manager at Dynamic Funds recently joined CNBC's ‘Squawk Box’ and showed optimism around the equity markets. He suggested that current highs may continue. He expects the Fed will implement two more rate cuts this year, which would help sustain market momentum. Despite some geopolitical uncertainties and election concerns, the broader expectation in the market since July, along with favorable banking and credit indicators, supports his positive outlook.
Blackstein believes the labor market's strength may be overstated and noted that revisions to employment data are likely due to a low participation rate in recent surveys. He also argued that real interest rates are historically high and tight, which further suggests the need for more cuts.
Regarding the economy, Blackstein expects further rate reductions to avoid potential market volatility, especially in light of recent hurricane impacts on employment and retail sales. He highlighted that while real interest rates may seem moderate when compared to the last 20 years, they are still elevated in historical terms.
As the Fed steers the economy away from a potential recession, Blackstein views the next phase as an opportunity for long-term growth, especially in areas like family housing and AI. He believes AI will drive a productivity revolution and integrate data strategies into several sectors, which will ultimately lead to cost savings and revenue growth for corporations.
Our Methodology
To list 10 oversold large-cap stocks, we used a Finviz screener to extract stocks that have fallen significantly on a YTD basis and have a forward P/E ratio between 5x to 15x. After getting a list of 20 stocks, we narrowed it to the most widely held by institutional investors. Finally, the stocks were ranked in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A modern internet space with a person using Baidu services on a laptop.
Baidu, Inc. (NASDAQ:BIDU)
Market Cap: $32.02 billion
FWD PE Ratio: 8.50
YTD Share Price Decline: ~20.3%
Number of Hedge Fund Holders: 42
Baidu, Inc. (NASDAQ:BIDU) is a Chinese technology company that primarily focuses on the internet, AI, and cloud computing and holds a significant share in China’s search engine market. The company has been a pioneer in AI advancements, especially with its foundation models, including ERNIE Bot and ERNIE 4.0, which have been integrated into its products to deliver AI-native experiences.
Its services span across several sectors, including its Mobile Ecosystem, AI Cloud, and Intelligent Driving initiatives. The Mobile Ecosystem includes popular apps like Baidu App, ERNIE Bot, and Baidu Post, and offers search and feed-based content while integrating third-party services. AI Cloud provides enterprise and public sector solutions with AI-powered tools tailored for industries like transportation, energy, and finance.
In intelligent driving, Baidu (NASDAQ:BIDU) leads in autonomous ride-hailing through its Apollo Go service, which operates in multiple Chinese cities and is expanding with fully driverless services. Xiaodu, Baidu's smart device division, holds the top position in smart displays and speakers in China.
Baidu (NASDAQ:BIDU) now plans to expand its Apollo Go driverless ride-hailing service internationally, targeting Hong Kong, Singapore, and the Middle East, as reported by The Wall Street Journal on October 9. The company aims to launch its Apollo 10.0 platform globally. The expansion is followed by intense competition in China, where Baidu operates over 400 robotaxis in cities like Wuhan. The company is shifting focus from its slowing ad business to AI, autonomous driving, and cloud computing for growth.
Ariel Investments stated the following regarding Baidu, Inc. (NASDAQ:BIDU) in its first quarter 2024 investor letter:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
Overall BIDU ranks 6th on our list of the oversold large cap stocks to buy. While we acknowledge the potential of BIDU as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BIDU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.