Baidu (BIDU) and Lenovo Have a New Phone, Is it Time to Invest?

In addition to mobile cloud and app-development, Li and Baidu are also focusing on a best-in-industry Maps software that gives outdoor and indoor navigation, and a remodeled HTML 5 mobile browser.

Getting to the valuation, we can see that to those who follow the Buffett/Greenblatt school of thought, now wouldn’t be a bad time to jump in on Baidu, which has been a generally good holding for long-term investors, returning close to 110% over the past three years.

Using sell-side analysts’ earnings estimates, we can see that EPS growth is expected to average 41-42% a year over the next half-decade, meaning that at a forward P/E of 14.8X, there’s a value opportunity here. We can see this more clearly when looking at Baidu’s PEG ratio — which normalizes expected earnings growth into the stock’s valuation — of 0.48. Typically, a PEG below 1.0 signals an undervaluation, and this mark is also below aforementioned broad-based tech peers like Google (1.38), Dell (1.26) and Qualcomm (1.47).

Even more interestingly, we can also see this disparity when looking at the five-year expected EPS rates of Google (15.7%), Dell (5.7%) and Qualcomm (14.3%), which are far below what is expected of Baidu, yet Google in particular sports a higher forward valuation (14.9X). Essentially, we can come to the logical conclusion that investors are underrating the Chinese Internet giant for its future earnings potential, which even though it’s slowing, still yields far more appreciative potential than Google, which is valued at a higher mark.

Even though we haven’t seen the exact impact that Baidu’s move to team up with two of China’s most dominant smartphone players will have on its top line, it’s encouraging to see the move in combination with the other developments that are taking place within the company. Throw in the fact that shares are on sale just in time for the Christmas holidays, and it’s easy to see why some of the hedge fund industry’s best managers love this stock.

Some key names in Baidu include: Ken Fisher (see Fisher’s newest stock picks), Ken Griffin, Steven Cohen and George Soros. Check out George Soros’s entire portfolio here, and check back at Insider Monkey for more about Baidu’s bullish potential.