Now, a confession. On any given day, I don’t know the level of the Dow, or the level of the Nasdaq or the price of any stock I’m following. I simply don’t remember prices. But I do remember trends very clearly, and I can say with great certainty that today’s stock market is as strong as Arnold Schwarzenegger was in 1975, when he won his sixth consecutive Mr. Olympia competition.
All the major indexes are strong. The Advance-Decline Line is strong. The number of stocks hitting new lows is minuscule. And stocks in general do not appear overbought, meaning that while a short-term correction is possible at any time, we do not appear to be at a climax phase. In short, the charts look great.
As to psychology, the temperature is rising, but there are still doubters, and we are far from euphoria. So there is plenty of upside left, which means that if you’re still not aggressively invested in this market it’s not too late.
One of my favorite investment areas, because of its growth rate, remains China … and one of my favorite stocks, mentioned above, is “the Google of China,” Baidu (BIDU).
The best coverage of the stock has come from Cabot China & Emerging Markets Report, which back on July 9 said this:
“Baidu is the dominant Chinese-language search engine in China, with a market share that hit 65.8% in 2008. (Google was second with 22% and Chinese rival Sogou was a distant third with 2.9%. Yahoo! was an even more distant fourth.) It is now the third-largest search engine in the world. For a company incorporated in 2000 and limited almost entirely to operations within a single country, this is a remarkable record. …
“Baidu has built its towering advantage over its powerful competitors by being both imitative and innovative. The imitative part of the Baidu strategy is its total adoption of Google’s paid keyword search as its revenue model. … The … innovation … has been understanding the Chinese language better than its competition. According to the language mavens at Baidu, the Chinese language has 38 ways of saying “I,” and an equally bewildering profusion of terms for other topics of interest. By incorporating a native speaker’s intuitive grasp of the poetry and ambiguity of this rich language, Baidu can deliver the results users want no matter how oddly they may ask for it. …
“Baidu’s future growth is expected to come from the growth of the Internet in China. Despite the controls and restrictions demanded by the Chinese government–mostly aimed at pornography and politically sensitive topics–the Chinese people are taking rapidly to life online. China now has more people online than any other country in the world (221 million in early 2008) and estimates put the growth rate at 18% per year, with a target of 490 million users by 2012. (We note that that’s more Internet users in China than there are people in the U.S.) …
“As usual, don’t let the stock’s high price put you off. Remember that $1,000 invested in BIDU is exactly the same as $1,000 invested in a stock trading at 10. It’s the exposure, not the number of shares that matters.”
When that was written, editor Paul Goodwin’s China-Timer, which monitors the health of the Chinese stock market, told him to be cautious, so he rated BIDU a hold. But just seven days later he wrote to subscribers, “The combination of a new buy signal from the Cabot China-Timer and a breakout on good volume makes this an easy call. BIDU is now rated buy. The stock failed just above 300 in June, then stalled there again in the first week of July. A six-day high-volume rally pushing past that old resistance is just what the doctor ordered. BUY.”
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowSince then, the stock has soared 24%, and now it’s building a base at 400. Of course, this seems like a ridiculously high price to some investors, but it’s clear to me that the folks at Baidu have taken another lesson from the Google playbook. They’ve learned that leaving your stock’s price high (instead of splitting the stock to artificially bring it down to a level attractive to the masses), means that more shareholders will be institutional investors who (hopefully) will treat the stock more wisely.
BIDU’s 50-day moving average is now at 350 and climbing, and if you wait until the stock and that moving average meet, you could find a decent entry point.