My No. 1 International Pick for 2015
Ask six market analysts what they think about Chinese stocks and you’re liable to get a dozen answers. Those opinions will range from frighteningly bearish to unabashedly bullish.
On the bull side is China’s still enviable economic growth, which should be about 7% in 2015. The bulls say that’s not bad, but it’s a huge slowdown, as well as a far cry from the double-digit percentage growth of years past. Well, you know what they say about opinions — everybody has one, or in the case of China, everyone has at least one.
So, rather than rely on opinions to guide my trading, I prefer to rely on hard data — and there’s no harder data out there than share price performance.
One of my favorite Chinese stocks, and my favorite international pick for 2015, is Baidu (NASDAQ: BIDU).
The company dominates China’s Internet search market with an 82% market share by revenue, according to data from iResearch. Ironically, Baidu can be considered “China’s Google.” I say ironically, because Google (NASDAQ: GOOG) actually is a distant second in the Chinese search market.
Over the past six months, the stock is up an impressive 34%. That performance has earned BIDU a relative strength rank (RS) rank of 89, meaning that the stock has outperformed 89% of the market over that time. Put another way, shares are in the top 11th percentile among all publicly traded stocks.
It has been proven that stocks with high relative strength ranks are more likely to continue to outperform than those with low RS. I see BIDU’s strength carrying into the new year.
Shares had a good showing Tuesday, up nearly 1% on the day despite the fact that Chinese markets took a beating. The stock opened the day 2.6% lower, but buyers rushed in to snatch up shares on the cheap. This buying activity also bodes well for continued gains.
Supporting the price performance, Baidu is posting impressive fundamental numbers.
In late October, the company’s Q3 earnings report revealed a 52% year-over-year surge in revenue, and a profit of 3.88 billion Chinese yuan (about $631.5 million). That number translates into adjusted EPS of 11 yuan ($1.79). In the same quarter a year prior, the company earned 3.05 billion yuan, or 8.63 yuan per share.
Baidu cited strength in its mobile web search, with mobile search traffic actually surpassing traditional PC traffic in the quarter. The company said mobile revenue provided 36% of its total revenue in Q3.
One of the reasons why I like Baidu shares here is due to the future growth prospects in that mobile search arena. You see, Baidu gets most of its revenue from online advertising, much the same way Google does. But more and more Chinese Internet users are logging on with their smartphones, and in years past, it’s been hard to monetize this search with ads on the mobile platform.
To remedy this situation, Baidu has invested a lot of money and manpower to essentially create the same kind of compelling environment for mobile advertisers as it had already done for its desktop PC browser advertisers. The Q3 results prove that the company has done just that, and I expect mobile revenue to improve even more in 2015.
I’m putting BIDU at the top of my 2015 buy list. And if you’re looking for more international exposure in your trading portfolio, you should check out my colleague Tom Vician.
Tom has an entire portfolio dedicated to international stocks in his Alpha Trader service, which uses the objective measure of relative strength to help identify the best-performing equities. In fact, he just recommended shares of a European company that have soared 77% in the past six months, giving it a sky-high RS rank of 95.
To learn more about Alpha Trader and get the name of a top pick for 2015, follow this link.