Morning Trade for May 5th 2021

Stocks ticked higher this morning following yesterday’s sell-off.  The tech sector bounced back on positive earnings news from Activision Blizzard (ATVI) and ride hailing company Lyft (LYFT).

Many economists believe China will overtake the United States as the world’s largest economy by 2028 given its current growth rate.  The country is a global manufacturing hub with an affinity for technological innovations and development.  Our trade alert for today highlights one large-cap Chinese tech firm that is well loved by hedge funds betting on China’s growth.  

The China-based multinational technology company Baidu Inc. (BIDU) is one of the largest AI and Internet companies in the world.  Last year Baidu rolled out its first fully AI-powered car as part of its Apollo project.  The Baidu Apollo integrated AI system allows vehicles to drive independently, without a safety driver inside the vehicle.  To ensure public safety in extreme road conditions, Baidu integrated 5G-enabled teleoperation into its vehicles. 

Shares popped nearly 60% higher in February following the company’s news of a joint venture with Geely (GELYY) to produce autonomous, electric vehicles.  In March, BIDU priced a global offering of 95 million shares from which it raised approximately HK$23.94 billion.  The company plans to use the proceeds for research and development on innovative technologies and the commercialization of its artificial intelligence innovations.   Share price has declined since it’s Feb. 19 peak and is currently down 7% YTD.  However,  the stock has gained over 110% over the past twelve months. 

On May 2, BIDU launched a paid, driverless taxi service in Beijing.  This is a big milestone for the autonomous driving industry as Baidu is the first Chinese company to commercialize autonomous driving technology.

Investor and founder of the world’s largest actively managed ETF company Ark Investment, Cathie Wood, is also betting big on BIDU.  Her 6.82 million shares represent a combined 2.05% weighting in Ark.  

BIDU’s valuation is reasonable compared to its peers. BIDU is currently trading at a Forward P/E ratio of 19.92.  This represents a discount compared to its industry’s average Forward P/E of 28.17.

The large-cap-tech firm will be looking to display strength as it nears its next earnings release, which is expected to be May 18, 2021.  The company is expected to report EPS of $1.46, up 16.8% from the prior-year quarter.

The company is expected to grow substantially in the coming months owing to its diversified business operations and large customer base.  BIDU’s EPS is expected to rise 33.3% in the first quarter, 8.3% in the second quarter, 3.4% in the current year, and 21.6% next year.  Analysts expect the company’s revenues to improve 30.7% in the quarter ended March 2021, 19.3% in the current year, and 14% in fiscal 2022.

Of 38 analysts offering recommendations for the stock, 32 say BIDU is a Buy, 5 call it a Hold and only 1 has a Sell recommendation.

Where to invest $1,000 right now...

Before you consider buying Baidu, you'll want to see this.

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