We recently compiled a list of the 7 Most Undervalued Foreign Stocks to Buy According to Analysts. In this article, we are going to take a look at where Baidu, Inc. (NASDAQ:BIDU) stands against the other undervalued foreign stocks.
Chinese stocks have seen a strong rally since September-end as numerous supportive measures have reignited the investors’ confidence. The Hang Seng China Enterprises Index, which includes Chinese stocks listed in Hong Kong, saw an increase of ~28% in the past month. As a result, Invesco’s chief investment officer stated that this rally resulted in some stocks becoming overvalued. Elsewhere, Germany continues to face its struggles, with expectations that its economy will contract by 0.2% in 2024. However, the German government expects that the economy should return to growth in 2025, with the GDP anticipated to rise by 1.1%, slightly up from the previous forecast of 1.0%, reported Euronews. By 2026, growth should reach 1.6% as a result of private consumption and stabilizing inflation.
Regarding the Japanese economy, after a two-day meeting that ended on 20 September, the BOJ maintained the overnight call rate target at 0.25%.
Chinese and Japanese Economy- The Road Ahead
Fortune reported that the stimulus measures announced by Beijing consisted of rate cuts, freeing-up of cash at banks, robust liquidity support for stocks, and a pledge to end the long-term fall in property prices. The surge seen in Chinese equities in the recent past reasserted their influence on broader emerging-market gauges and weighed over the performance of fund managers running underweight positions.
Experts opine that the durability of such a rebound should influence the year-end performance of index-tracking funds. This will also have direct implications for nations having trading and investment links with the Chinese economy. Recently, The World Bank announced that China’s economic growth is expected to further slow in 2025 despite the stimulus measures. The World Bank projects that China’s growth will decline to 4.3% in 2025, down from an expected 4.8% in 2024. However, Mint reported that the recent surge in Chinese stock prices might demonstrate anticipations of increased inflation. This will raise nominal profits and the expectation of stronger corporate and economy-wide fundamentals. Therefore, experts are now more confident that China might turn its economy around and report much stronger growth in the last quarter and 2025.
While the market experts appear to be optimistic about Chinese equities, they should know that the Japanese economy is on a strong footing. Russell Investments believes that consumer spending stands at healthy levels and corporate earnings should continue to grow. While the investment firm expects that BoJ will remain cautious when considering future rate increases, it highlighted that capital expenditure intentions from businesses are strong.
Chinese Stimulus Measures to Help Foreign Economies
Mint also reported that the positive spillovers to the global economy will be greater if fueled by healthier Chinese economic fundamentals rather than just increased nominal prices. Talking about the developed economies, Australia and South Korea are expected to benefit the most, especially if there is even a partial recovery in the Chinese real-estate sector. This is expected to fuel demand for Australian iron ore, along with other raw materials.
South Korea, which has been tagged as a home to key suppliers in Chinese regional and global value chains, should witness increased demand for its industrial exports. If China’s willingness to spend increases, countries producing luxury products or attracting Chinese tourists, like France and Italy, are expected to benefit significantly over the upcoming months and around the next Chinese New Year in January.
Our Methodology
To list the 7 Most Undervalued Foreign Stocks to Buy According to Analysts, we used a Finviz screener to screen for ex-US companies. Next, we narrowed the list by choosing the stocks that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the chosen ones according to their potential upside, as of 10 October. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A modern internet space with a person using Baidu services on a laptop.
Baidu, Inc. (NASDAQ:BIDU)
Forward P/E Ratio as of 10 October: 9.64x
Average Upside Potential: 25.30%
Number of Hedge Fund Holders: 42
Baidu, Inc. (NASDAQ:BIDU) is engaged in the provision of internet search services in China.
Baidu, Inc. (NASDAQ:BIDU)’s commitment to AI innovation remains evident in the scaling and affordability of its AI offerings, which include ERNIE models and the Apollo Go autonomous ride-hailing service. The company highlighted that Apollo Go transitioned to fully driverless services in Wuhan and has been testing its 6th generation autonomous vehicle, the RT6. Baidu, Inc. (NASDAQ:BIDU) continues to improve margins and enhance market share in the GenAI and LLMs market.
The company remains focused on enhancing its mobile ecosystem with AI technology to create long-lasting user value. Market experts remain optimistic about Baidu, Inc. (NASDAQ:BIDU)’s AI Cloud business, which has been witnessing accelerated growth as a result of strong demand for AI infrastructure and models. Also, its autonomous driving innovation, primarily Apollo Go, has been making strides toward commercial viability.
Wall Street believes that Baidu, Inc. (NASDAQ:BIDU)’s technological leadership and first-mover advantage in AI should strengthen its competitive position. The company has been exploring various business models and partnerships in a bid to scale up its robotaxi services. Baidu, Inc. (NASDAQ:BIDU)’s emphasis on innovation and market expansion, together with a commitment to making AI solutions more accessible, places the company favorably for future growth.
As per Wall Street, the shares of Baidu, Inc. (NASDAQ:BIDU) have an average price target of $128.75. Ariel Investments, an investment management company, released its first-quarter 2024 investor letter. Here is what the fund said:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
Overall BIDU ranks 3rd on our list of the undervalued foreign stocks to buy according to analysts. While we acknowledge the potential of BIDU as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than BIDU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.