While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Baidu, Inc. (NASDAQ:BIDU) gained 4% today after the Chinese Internet search giant posted strong quarterly results and received a neutral-to-buy upgrade from Deutsche Bank.
So what: Along with the upgrade, analyst Alan Hellawell III boosted his price target to $229 (from $178), representing about 43% worth of upside to yesterday's close. So while momentum traders might be turned off by Baidu's price sluggishness in recent months, Hellawell's call could reflect a growing sense on Wall Street that its prospects are becoming too cheap to pass up.
Now what: According to Deutsche, Baidu's risk/reward trade-off is particularly attractive at this point. "Baidu continues to guide upbeat top line at 56%-60% YoY for 2Q, beating cons. by ~4%," said Hellawell. "Despite a purported heavy investment plan for the rest of FY14, we believe the market has underestimated BIDU's viability and is overly conservative on its growth /earnings outlook. We believe it is unjustified for BIDU to trade at a significant discount vs. peer avg amid steadily improving fundamentals." When you couple Baidu's cheapish valuation with its still-rock solid financial position, it's tough to disagree with Deutsche's upgrade.
Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.