Welcome Back Home Baidu.com (BIDU)

Reader msb pointed out an article here, which I read last night here, discussing Baidu.com which in a nutshell shows those Chinese capitalists are not so cute and cuddly when it comes to competition. Here is the story with China; they have our **** in their steely grip. What are we going to do about it? Not much other than jawbone. They know it. We know it. It's their ball and they can go home with it. This might be an isolated event (or not), but point is, if the state is behind you, I (as an investor) will be putting my cards on you. Right Halliburton (HAL)?

Therefore off this news and a decent chart pattern (and strength today), I am restarting Baidu.com (BIDU) into the fund. Don't ask me about the valuation because I won't tell. ;) With that said, I can make a valuation case on 2009 earnings (cough cough).

I had originally bought in the $166 range and added in the $189 range in mid August, and sold out my last piece around $283 September 21, thinking $300 would be a psychological area that the stock would stall out at. Wrong. $360s soon followed. I never had a ton due to valuation so it did not make a great impact on fund performance but it was a nice % gain at least...

I wrote back then:

I am completely exiting my Baidu.com (BIDU) position at this point. While the general strategy of the fund is to never completely leave a position it likes, (but instead to lever in and out of names as they go up and down).... since the stock can continue to run far past what one might consider legit, this one has just risen too much. I never had enough Baidu.com in retrospect judging from the magnitude of this run but the stock has risen >20% in 5 sessions ($230 to $280), and is up enormously from my purchase points on Aug 10th (upper $180s, up almost 50%) and August 16th (mid $160s, up almost 70%)

While the valuation makes me woozy, the lack of growth stories in this market makes me think (barring meltdown) the stock will have a lot of institutional support. The mantra seems to be, if you missed Google, well here is another chance to play Google part 2. Along with technical reasons (stock is holding its 20 day moving average very well), and this news of government tilting the playing field in Baidu's favor, I will restart a smaller type position. 35 shares @ $316s or $11K - this makes Baidu.com now a 1% position again. In days like this you really want stable stocks like Baidu.com which shows little weakness (I can't believe I just said that) A break at this level takes you down to the 50 day moving average, $270, or 15% lower. If we go there, I'd be a more interested buyer in scale.

So in essence I am buying back a position that I sold about a month ago for 11% higher... but buying a bit more.

Some highlights from the 2 articles above:

• Further to our earlier story on visitors to Google Blogsearch being redirected to Baidu in China, new reports have surfaced that would indicate that China has unilaterally blocked all three major search engines in China and is redirecting all requests to Baidu.
• I’ve written previously on the possibility that China may use its firewall as an economic tool as opposed to a censorship tool alone, and although censorship may be partially behind todays blanket ban of US search sites, the redirect to Baidu would indicate an economic motive; if the Chinese Government were serious about censorship alone we would have reports of page not found/ blocked messages, not redirects to Baidu.
• The Chinese Government is clearly using its censorship regime to the economic benefit of a Chinese owned (but NASDAQ listed) company. Although the United States Government is a poor WTO member (Antigua anyone) given that China is a recent member the US Government should lodge a complaint with the WTO. China expects free and open access to Western nations but is now not only blocking, but also redirecting domestic traffic away from Western internet sites that compete with local firms.
• According to a report Friday from the group Reporters Without Borders, access to Google's blog search and YouTube video-sharing services was disrupted during the Party's week-long congress, as a means of limiting the public's access to information about the event.
• "The blocking of these sites comes at a perfect time for the government," the Reporters Without Borders report said. "Blogs and video-sharing sites such as YouTube offer ways for Internet users to share situations they may have encountered during the congress. Preventing Chinese citizens from having access to them forces them to rely on the national media for their information

Takeaway: It is expensive, yes it's true. I'd rather be buying at $260 but short of market panic it does not look like I will be getting that. And at $10 Billion Market cap, versus $200 Billion in Google, over a 3 year time frame Baidu will be the one with the greater return in my opinion. If not in the next few weeks; perhaps there will be a selloff post earnings in Baidu as analysts are indicating an inline quarter. At this juncture with a slowing US economy there are going to be less and less growth engines and money will still want to find a home - so those that can show growth will get more of the capital, most likely inflating their values past what we think 'should happen'. But at least with a company like Baidu.com you know the long term currents (and government) are in their favor.

Long Baidu.com, Google in fund; no personal position