March 10, 2013 in Business

Chinese search-engine giant may be destined for greatness

Universal Uclick
 

The product marketing staff works at the Chinese Internet search giant Baidu in Beijing in 2010.
(Full-size photo)

If you can handle a little extra risk, Chinese search-engine giant Baidu (Nasdaq: BIDU), often compared to Google, offers the possibility of extra reward. There’s a lot to like about it, but a few cautions as well.

With a recent market capitalization of about $32 billion, Baidu has been growing rapidly. Its revenue has averaged annual growth of more than 60 percent over the past five years, with earnings averaging more than 70 percent.

There’s much potential for further growth, too, as perhaps half of China’s billion-plus population is not yet online. Baidu has irons in many fires. It’s working with France Telecom to develop a browser for mobile devices for emerging markets in Africa and the Middle East. The company has recently introduced a product-search service, too, which could deliver shopping-based revenue.

Those wary of Baidu point out its growing debt, significant competition and China itself. Some worry about China’s growth rate slowing, its government’s ability to hurt profitability via restrictive regulations, and even possible fraud. Still, given Baidu’s heady growth rate, the stock recently sported a price-to-earnings ratio of just 19, making it seem quite undervalued. Its valuation would be compelling even if its growth rate slows some. (The Motley Fool owns shares of Baidu, Google and France Telecom, and its newsletters have recommended them.)

Ask the Fool

Q: How much will health care cost me in retirement? – H.E., South Bend, Ind.

A: Retirees and pre-retirees should prepare to pay a lot out of their own pocket for medical expenses not covered by insurance or Medicare. According to Fidelity Investments, an average 65-year-old couple retiring this year will need $240,000 socked away to cover health care costs for the following 20 years. (This doesn’t include the cost of long-term care.)

Remember, though, that that’s an average. Your ultimate cost could be significantly higher – or lower – than the average. Still, it’s a useful reminder that health costs can be substantial and should be factored into your retirement planning. Get more guidance on that at fool.com/retirement/index.aspx.

My Dumbest Investment

My dumbest investment was made around 2002, when on the advice of several people, I bought 10,000 shares of a company with an exciting technology that could evaluate baseball umpires. At the time, it was listed in newspapers and in the market. A bit later, it was not listed anywhere, and my broker and I couldn’t find it, nor were we able to contact the company. Fortunately, I lost only $1,000. – W.K., Sarasota, Fla.

The Fool responds: If you bought 10,000 shares for $1,000, then you paid around 10 cents per share, meaning you were dealing with a company firmly in penny-stock territory. Such companies can be very exciting and tempting, perhaps working on cures for cancer or drilling for oil, but they’re also extra-risky and more easily hyped and manipulated, owing to their small size.

It may be thrilling to own 10,000 shares of anything, but remember that a 10-cent stock can easily become a 2-cent one. You might be far better off buying five shares of a solid, growing $200 stock with that $1,000.

Get stories like this in a free daily email


Please keep it civil. Don't post comments that are obscene, defamatory, threatening, off-topic, an infringement of copyright or an invasion of privacy. Read our forum standards and community guidelines.

You must be logged in to post comments. Please log in here or click the comment box below for options.

comments powered by Disqus