Best International Stock: Baidu.com

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You've heard the China story a zillion times by now. It's been home to one of the hottest markets over the past few years. Its economy is growing at a better than 10% annualized clip. Growth stocks in the world's most populous nation are heating up a lot more rapidly than their stateside counterparts are. And  the country's yuan currency is gaining value at the dollar's expense.

The past few months have been rocky, but there is little reason to believe that China won't continue to be one of the hottest markets in the future, since its growth story remains essentially intact. 

No Chinese investing story would be complete without taking a peek at Baidu.com (Nasdaq: BIDU  ) . The leading search engine watches over nearly two-thirds of the search queries in China. No one else even comes close. Google (Nasdaq: GOOG  ) is a distant second. Smaller engines, such as Sohu.com's (Nasdaq: SOHU  ) SoGou, are fringe players, while others have conceded the paid-search monetization to the two top dogs.

SINA (Nasdaq: SINA  ) feeds its searches through Google, and Microsoft's (Nasdaq: MSFT  ) MSN China lets Baidu do the character-alphabet-driven searches that it has excelled at over the years.

Why should a country-specific search engine workhorse like Baidu get your nod as the best international stock? Let me count the ways.

1. Baidu is early in its growth cycle
There were 162 million Chinese netizens as of this past summer, according to the China Internet Network Information Center. That may seem like a big number, but it really means that only one-eighth of the country has regular Internet access. That number will grow along with the economy.

Baidu will benefit on two different levels. With Web usage growing -- and the typical user making more money in an improving economy -- advertisers will pay more to reach that audience through targeted online marketing campaigns.

This growth outlook isn't just wishful thinking. Every passing quarterly report out of Baidu shows the average advertiser spending more than it did the year before.

2. The valuation is attractive
At a recent price of $270, Baidu is trading at 65 times this year's projected profitability. That may not seem cheap, but Baidu is set to grow its earnings at a 76% clip this year, and that's after more than doubling its earnings in 2007.

Yes, Baidu is trading at a discount to its growth rate! Sure, you have Web-sharp companies such as Perfect World (Nasdaq: PWRD  ) and Shanda (Nasdaq: SNDA  ) trading at earnings multiples in the teens, but Baidu is the gateway to the Internet in China.

After smoking Wall Street's profit targets in five of the past six quarters, the company has a good chance of proving forward estimates to be too conservative in retrospect.

3. Thinking outside the search box
Baidu has done a great job of milking its position in China. It has used its search engine to launch popular discussion boards and even a movie-downloading service. A consumer-auction site is in the works, and Baidu recently launched a Japanese-language search engine in Japan.  

Baidu doesn't need these new revenue streams. It has years of dramatic upside ahead just within its paid-search turf. But it's good to know that Baidu isn't resting on its laurels, even as it delivers growth that the other stocks in this contest may not be able to match.

If you agree with me, let the world know about it. Just head on out to the Baidu page on CAPS, and decree the company an "outperform" in the year ahead. Naturally, you're welcome to vote the other way if you think I'm nuts. Time will tell.

The thing about time, though, is that you're going to kick yourself if you miss on Baidu, all while you hear the China growth story a zillion more times.


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