Baidu.com: It's No GoogleShares of Beijing's Baidu.com (BIDU) (BIDU), the No. 1 provider of Chinese-language Internet search services, are on fire, climbing to 255.67 on May 6 from a 52-week low of 100 on Dec. 10. One big reason behind the runup: Many investors equate it with Google (GOOG) and see it as a promising bet on the vigorous Chinese stock market.
"The conventional view that Baidu is China's Google is wrong," says Tian Hou of Pali Capital. The two are "very different in their business fundamentals." Also bearish is Standard & Poor's (MHP) Scott Kessler, who rates Baidu a sell, with a 12-month target of 205. After its sharp rise since January, Baidu is now "overvalued," he adds.
Kessler and Hou say Google clearly separates nonpaid search results from paid "auctioned" search, while Baidu mixes them on a single list. So users click more to complete a search, says Hou, thus inflating revenues. Baidu disagrees, saying it clearly marks the paid from nonpaid search results even if they are on one list. In addition, Baidu has started using a system called Phoenix Nest aimed at producing more accurate results. It also better distinguishes paid from nonpaid search results. But Hou says until Phoenix is totally in place, "it's too early to buy the stock." She also expects China to regulate Web ads--"a negative for Baidu," she says.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.A Steel Giant Shows Its MettleWorries about the economy are overshadowing the long-term values in steel stocks, some of which are starting to rise. One mover is Commercial Metals (CMC) (CMC), a big recycler of scrap metal and a maker of structural steel, now at 16.39, up from 6.25 on Nov. 20. But it's still down from 40 in June. It has yet to reflect CMC's strong recovery potential," says Jared Levin of investment firm A.R. Schmeidler, which owns shares.
As a major steel producer, CMC will gain from global government stimulus outlays, including those for massive road, bridge, and other infrastructure projects, says Levin. He puts CMC's value at 25, based on its earnings power, solid balance sheet, and dividend yield of 3.4%.
Researcher New Constructs says CMC's high quality earnings and 16% return on investment capital make it attractive and offset the stock's downside risk.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.Saving IT Outlays with BluePhoenixMounting pressure on the companies' info tech units to slash costs has been a boon to BluePhoenix Solutions (BPHX). It specializes in helping companies shift to lower-cost software systems and standardized hardware. BluePhoenix customers often save 50% to 90% on their annual maintenance costs, says Jeff Van Rhee of Craig-Hallum Capital Group, who rates BluePhoenix a buy. Although few investors are aware of this Israeli outfit, its growing order backlog and rising margins give it "significant room for appreciation," says Van Rhee. He sees the stock, now at 2.20 a share, rising to 5 in a year. (Craig-Hallum has done business with BluePhoenix.)
Daniel Meron of RBC Capital Markets rates BluePhoenix outperform, and sees earnings of 45 cents a share on sales of $93.7 million in 2009, vs. 35 cents on $91.8 million in 2008.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.