New Bulls for Baidu

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Jefferies & Co. is the latest firm to warm up to China bull Baidu (Nasdaq: BIDU  ) .

Jefferies initiated coverage of China's leading search engine with a "buy" rating this morning, establishing a juicy $200 price target. Analyst Cynthia Meng is encouraged by Baidu's strong position in a country that is still early in its dot-com growth cycle.

Jefferies also initiated coverage of SINA (Nasdaq: SINA  ) and parent Tencent (OTC BB: TCEHY.PK) with bullish ratings.

The optimism comes at a time when China's dot-com darlings are far from cheap. Baidu trades at 58 times this year's projected profitability, and SINA's multiple clocks in at a whopping 68. However, they are also growing fast enough that several analysts feel China's finest will continue to beat the market.

Wall Street has also taken kindly to recent IPOs of online giants in China that have even loftier valuations. Web-based book retailer Dangdang (Nasdaq: DANG  ) is fetching more than 200 times this year's expected earnings, and leading video-sharing website (Nasdaq: YOKU  ) isn't even profitable.

If you're having flashbacks to the dot-com bubble that burst into sudsy smithereens a decade ago, take things down a notch. Many of the speculative blowups were profitless companies at the mercy of venture capitalists and investment bankers. Established cyberspace bellwethers Baidu, SINA, and (Nasdaq: SOHU  ) have sustainable models with thick margins, attractive tax rates, and plenty of the one-two punch of upside potential through a growing middle class with improving Internet migration rates.

This doesn't have to end ugly or sudsy. Jefferies may seem to be arriving late to the party, but it may seem early in retrospect if Baidu and SINA continue to grow their Web-centric businesses at healthy rates in the coming years.  

Is Baidu overvalued or undervalued? Share your thoughts in the comment box below.

Baidu and are Motley Fool Rule Breakers recommendations. SINA is a Motley Fool Stock Advisor selection. 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.

Longtime Fool contributor Rick Munarriz has been a fan of China's growth stocks for several years now, even though he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Related Tickers

10/27/2016 4:00 PM
BIDU $175.10 Up +2.28 +1.32%
Baidu CAPS Rating: *****
SINA $77.29 Down -0.16 -0.21%
Sina CAPS Rating: ***
SOHU $38.25 Down -1.47 -3.70% CAPS Rating: ***