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  • Writer's pictureIshfaaq Peerally

Baidu Stock Analysis - Google of China

I started investing on this day four years ago. I invested $100 in oil on the first day and made $24. The trade was, of course, leveraged. But I was hooked. The next day I traded that $124 and lost $53. In the first six months of investing, I lost a out $700 out of the $2000 that I had invested. But I gradually became better as I learned more and there's still much to learn. Over these four years, a lot has happened. There has been one market corrections and we are currently in a bear market. Despite all these fluctuations and volatilities, my total returns in four years is 53% while the returns of the S&P 500 $SPX500 is 34%. If you had copied me with $10 000 on my first day, you would have $15 300 today compared to $13 400 in the S&P 500 (this is counting the disastrous start that I had). If we ignore them, then the returns are $21 400 but we cannot and shouldn't ignore them). In the long-term, the stock market, whether you copy me or not, is a winning game.

In the short-term, the Fed may be lowering interest rates. There may be deflation, a bear market, a recession, followed by inflation. Oil crash, gold crash. Companies will go bankrupt. Pandemic. War. But if you focus on the long-term, you will most certainly make money in the stock market. Just ignore the noises, and make the best use of the opportunities. This is a long-term game. I took the opportunity today to add some $$SWKS and $$JPM to my portfolio.

Baidu Stock Analysis - Google of China

Baidu $BIDU is known as the Google $GOOG of China as they own the most popular search engine in China, Baidu. In recent years, the stock price has been falling along with the net income of the company. Is it time to buy?

The revenues of Baidu has been increasing at a fast rate in recent years, actually faster than that of Google but the net income of the company has been falling. There is clear correlation between the net income and stock price. The reason why the net income of Baidu is falling is because they own IQiyi, the Netflix of China $NFLX . Just like Google is banned in China, Netflix too is banned in China. This gives Baidu a quasi-monopoly both in search engine and video streaming. iQiyi, just like Netflix, is losing a lot of cash. Both businesses are profitable but have a huge capital expenditure and loses a lot of cash. 9% of the revenues of Baidu comes from iQiyi but iQiyi accounts for 40% of the expenses.

Another problem I see with Baidu is that they are a VIE, Variable Entity Interest. This is something I already explained in much more details in my video about Alibaba $BABA but basically a VIE is a Chinese company, incorporated in the Cayman Islands, which is then being traded on an American exchange. This means that when you're investing in Baidu stocks, you are actually investing in the business in the Cayman Islands and not in China. This can be risky if let's say the Chinese government decides to ban VIEs.

Google doesn't have any debt. Baidu has debts but it is not as bad as many Chinese companies which are overleveraged. I will say that in general, the balance sheet of Baidu looks good.

Baidu will still grow at a fast rate in the future but for me, the stock is too expensive. There are so many companies in China that are at a great price. The average PE ratio in China is 10. Baidu has a PE ratio of 150. It means there are a lot of companies with PE ratios of less than 10. You need to consider these companies as well. Don't focus just on the big companies such as Alibaba,, or Nio.

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