You Can Buy Both Baidu and Qihoo 360

You don't have to choose between Ginger and Mary Ann, so why would you have to make a decision that pits Qihoo 360 (NYSE: QIHU  ) against Baidu (NASDAQ: BIDU  ) ?

J.P. Morgan thinks that both are worthy investments, tagging the pair of Chinese Internet speedsters with bullish overweight ratings. A price target of $94 is being established for Qihoo, and Baidu's goal is getting raised from $115 to $162.

It's easy to see why the market's smitten. Qihoo excited investors with blowout quarterly results on Monday. The report followed a strong showing by Baidu a month earlier.

The notion that investors can pick only one horse in a race is absurd. If a sector's prospects are improving, that rising tide should lift all of the seaworthy ships. You didn't buy just one 3-D printing company last year, right?

"Just buy both," I concluded last September.

Qihoo's new search engine was starting to make waves, but both companies were on firm footing.

It hasn't been much of a contest since then. Qihoo has gone on to soar 228%, while Baidu has climbed just 31%. Yes, Baidu's return doesn't seem all that impressive, but it's more than doubled the S&P 500's 14% gain in that time.

In retrospect, I stand by that call. It's easy to argue that investors could've made 228% if they had invested it all in Qihoo, but there's nothing embarrassing about a nearly 130% combined return in less than a year if you had bought both. It's a move that would have lowered the risk dramatically over choosing the market leader or the potential disruptor.

As it stands, Baidu has more than held up to the challenge. Qihoo is growing faster, but Baidu still commands roughly two-thirds of the search queries performed in China.

J.P. Morgan isn't keen on all Chinese Internet stocks. It gave Sohu.com (NASDAQ: SOHU  ) -- the parent company of China's third largest search engine Sogou -- a neutral rating. It formerly had an overweight rating.

Qihoo has been rumored to have an interest in acquiring Sogou this summer, a move that would give the combined engines nearly a quarter of the market. However, the recent run in Sohu's stock in anticipation of a deal apparently has J.P. Morgan asking investors to take a cold shower.

That may be a fair call. Sohu isn't growing as quickly as Baidu or Qihoo, but the stock has soared nearly 50% since my "just buy both" moment on Sept. 12, 2012.

I'm not budging on that call. As China's online market continues to evolve with a larger and wealthier base of users, advertisers will keep paying more to generate leads. J.P. Morgan has the right idea, and if anything, the price targets may be conservatively low.

3 stock ideas that aren't Baidu, Qihoo, or Sohu
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "
3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

 


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2617780, ~/Articles/ArticleHandler.aspx, 11/24/2014 7:53:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement