The Week Ahead in Foreign Stocks

It's a busy earnings week, and what an important one it may turn out to be.

Following a better-than-expected report from Google (Nasdaq: GOOG), investors will be eyeing other tech giants like Apple (Nasdaq: AAPL) and Amazon.com for similarly hopeful results. A series of positive earnings reports this week could indeed reverse the downward trend and reinvigorate the market.

But popular U.S. stocks will get enough coverage this earnings season, so let's take the road less traveled and look more closely at foreign companies that are also reporting this week. In addition, we'll enlist the help of more than 97,000 investors participating in Motley Fool CAPS, the Fool's online investing community, to figure out which American depositary receipts may shine this week.

Don't you forget about me
Some important reports will be coming in from overseas, including from these companies:

Whatever Baidu, you do, too
Chinese search engine Baidu.com reversed course and gained 20% last week on the back of great results from Google and the news that it will launch an online game business.

While last week's events were encouraging, Baidu still has a price-to-earnings ratio of 136 to justify. This week's earnings report will help investors decide if such a lofty price is worth paying.

Analysts expect an 88% jump in year-over-year earnings, which would settle the market's nerves somewhat. Baidu has done a great job at exceeding analysts' expectations, but investors may still be understandably skeptical.

For one, Baidu generates all of its revenue in China, where general inflation is running above 8% and, perhaps more importantly, food prices have skyrocketed 21%. This puts more pressure on the purses of ordinary Chinese consumers, who spend up to half of their income on food, leaving less to spend at Baidu's advertisers' locations. The spike in inflation is also putting pressure on the Chinese government to increase interest rates, which doesn't directly affect Baidu.com much since the company has no long-term debt. But it does hurt the high-growth and highly leveraged Chinese companies who advertise on Baidu's website.

Can Baidu keep up with Google and shock the Street? CAPS investors aren't completely sure: Of the 2,863 players who have rated the stock, only 85% think it will outperform the S&P 500. That might seem like an impressive bull-to-bear ratio, but it results in a mediocre three-star rating.

One recent Baidu bull is owshx, who thinks that Google's successful quarter was also experienced in China: "China's google ... the power of targeted keyword online advertising is [truly] amazing."

On the other hand, Baidu bear GoingToWin thinks weakness in the Chinese stock market and potential changes in the Chinese government could keep the stock under for the long run:

Price is too high. Too many people bought into the China craze with this stock. [Government] control. Might have a pop but I think long term this is going to fade out. I think the greatest strength of this stock is the shear number of people that are in China, but I also think that will be the demise and there will be many underground people that would rather use google.

In this Fool's opinion, investors should heed the caution expressed by the CAPS community and do more research before making an investment in Baidu. Analysts have set some lofty expectations for Baidu, and at these prices the potential upside appears to be minimal when juxtaposed with its downside risk in light of the Chinese inflation quagmire. In any case, this is not a stock for the faint of heart.

What do you think? Will Baidu prove the doubters wrong, or will the receding tide of the Chinese market pull the company's ship out to sea? Make your voice heard on Motley Fool CAPS.