4 Reasons Baidu Could Make You Rich

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4 Reasons Baidu Could Make You Rich

seekingalpha2021-05-03

Summary Strong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years. ...

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patricklowck
·2021-05-04
it's provided that America does not create havoc on it...biden is more unpredictable and difficult to dealt with than Trump.
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NP_YT
·2021-05-03
Yes
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HoSayBo
·2021-05-03
[強]
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- Ericlam:
  Nice
  2021-05-06
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MengKeng
·2021-05-03
It is indeed time to buy the shares
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kstle
·2021-05-03
“Today I buy what others won't, so tomorrow I earn returns others can't."- Paraphrase of Jerry Rice[Thinking]
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geoffery
·2021-05-03
Agreed
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- Money Sprout:
  Wouldn’T tesla make u richer
  2021-05-03
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zzcloud88zz
·2021-05-03
Likey likey
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linrui
·2021-05-03
Good
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- linrui:
  Please like and comments. Thks.
  2021-05-03
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AaronHeng
·2021-05-03
Great
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- och:
  [微笑]
  2021-05-03
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och
·2021-05-03
Wow. Like and comment pls thx!
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- gum:
  done. pls like and comment back. Thanks
  2021-05-03
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firefirefire
·2021-05-03
One must also be rich to invest in this share
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Jameschia
·2021-05-03
Up up up
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firefirefire
·2021-05-03
Yes, I believe inti the near future
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Mochizuki
·2021-05-03
Anything can make you rich if you know where tolook at the right time
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Sap
·2021-05-03
Why so
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bobho
·2021-05-03
Latest
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leo25
·2021-05-03
Let's go
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Whateverlah
·2021-05-03
lol
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lowL
·2021-05-03
No thank you, next
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- Mochizuki:
  Ever the Warren Buffet swimming against the current eh
  2021-05-03
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StephenC
·2021-05-03
Hmmm will be stiff competition with Tencent & Alibaba & some Chinese govt regulation issues ?
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The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"09888","symbol_name":"百度集团-SW","start_time":0,"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","article_id":"1121605010","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","pubTimestamp":1620014543,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"translate_title":"百度能让你致富的4个理由","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"09888":0.9,"BIDU":0.9},"content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":106853031,"gmtCreate":1620103863323,"gmtModify":1704338714510,"author":{"id":"3565580415318008","authorId":"3565580415318008","name":"patricklowck","avatar":"https://static.tigerbbs.com/fc04396a7aff08c74904d7b520596366","vip":1,"hat":"https://static.tigerbbs.com/ae1f49570794979e009a5efdeb6f4789","crmLevel":8,"crmLevelSwitch":1,"idStr":"3565580415318008","authorIdStr":"3565580415318008"},"htmlText":"it's provided that America does not create havoc on it...biden is more unpredictable and difficult to dealt with than Trump.","listText":"it's provided that America does not create havoc on it...biden is more unpredictable and difficult to dealt with than Trump.","text":"it's provided that America does not create havoc on it...biden is more unpredictable and difficult to dealt with than Trump.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/106853031","repostId":1121605010,"repostType":2,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108404984,"gmtCreate":1620047108948,"gmtModify":1704337821983,"author":{"id":"3572043809285615","authorId":"3572043809285615","name":"NP_YT","avatar":"https://static.itradeup.com/news/fad9f70abb174e3e09e4caf3f9c0c13a","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3572043809285615","authorIdStr":"3572043809285615"},"htmlText":"Yes","listText":"Yes","text":"Yes","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108404984","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108237805,"gmtCreate":1620029306607,"gmtModify":1704337579243,"author":{"id":"3577273775400833","authorId":"3577273775400833","name":"HoSayBo","avatar":"https://static.tigerbbs.com/75258d10fa6a75acaa29bb93b8732c93","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3577273775400833","authorIdStr":"3577273775400833"},"htmlText":"[強]","listText":"[強]","text":"[強]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108237805","repostId":1121605010,"repostType":2,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4236751,"gmtCreate":1620264978689,"gmtModify":1680787210284,"authorId":3559787818034959,"author":{"id":3559787818034959,"idStr":"3559787818034959","authorId":3559787818034959,"name":"Ericlam","avatar":"https://static.tigerbbs.com/f2154f4bb8afd22f8e6fde60b57acb69","vip":1,"currentWearingBadge":{"badgeId":"1026c425416b44e0aac28c11a0848493-3","templateUuid":"1026c425416b44e0aac28c11a0848493","name":" Tiger Idol","description":"Join the tiger community for 1500 days","bigImgUrl":"https://static.tigerbbs.com/8b40ae7da5bf081a1c84df14bf9e6367","smallImgUrl":"https://static.tigerbbs.com/f160eceddd7c284a8e1136557615cfad","grayImgUrl":"https://static.tigerbbs.com/11792805c468334a9b31c39f95a41c6a","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.09.15","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1001},"crmLevel":7,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108237805,"type":1,"supId":0,"prevId":0,"content":"Nice","text":"Nice","html":"Nice"}],"langContent":"CN"},{"id":108205238,"gmtCreate":1620026424524,"gmtModify":1704337551781,"author":{"id":"3582668988155006","authorId":"3582668988155006","name":"MengKeng","avatar":"https://static.tigerbbs.com/daf999525f61ba41d3c13b0ed728eb77","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3582668988155006","authorIdStr":"3582668988155006"},"htmlText":"It is indeed time to buy the shares","listText":"It is indeed time to buy the shares","text":"It is indeed time to buy the shares","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108205238","repostId":1121605010,"repostType":2,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108677615,"gmtCreate":1620025326737,"gmtModify":1704337541164,"author":{"id":"3582361231785431","authorId":"3582361231785431","name":"kstle","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3582361231785431","authorIdStr":"3582361231785431"},"htmlText":"“Today I buy what others won't, so tomorrow I earn returns others can't.\"- Paraphrase of Jerry Rice[Thinking]&nbsp;","listText":"“Today I buy what others won't, so tomorrow I earn returns others can't.\"- Paraphrase of Jerry Rice[Thinking]&nbsp;","text":"“Today I buy what others won't, so tomorrow I earn returns others can't.\"- Paraphrase of Jerry Rice[Thinking]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108677615","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108651013,"gmtCreate":1620021541732,"gmtModify":1704337504507,"author":{"id":"3581648247379219","authorId":"3581648247379219","name":"geoffery","avatar":"https://static.tigerbbs.com/a2a7fdfb28f9a4b2aebeb99857ff6398","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3581648247379219","authorIdStr":"3581648247379219"},"htmlText":"Agreed","listText":"Agreed","text":"Agreed","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108651013","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4207183,"gmtCreate":1620024632397,"gmtModify":1680786746442,"authorId":3567511757211423,"author":{"id":3567511757211423,"idStr":"3567511757211423","authorId":3567511757211423,"name":"Money Sprout","avatar":"https://community-static.tradeup.com/news/a90f46b85a1738ed3c9b09de55cb7371","vip":1,"currentWearingBadge":{"badgeId":"23f878ed27704312ae41c7f17e73b319-5","templateUuid":"23f878ed27704312ae41c7f17e73b319","name":"Annualised return","description":"Top 5%","bigImgUrl":"https://community-static.tradeup.com/news/28b025635697d2f8cba3e94ec9f33231","smallImgUrl":"https://community-static.tradeup.com/news/b9d0f04877ffafa61d3f0d06efb58d87","grayImgUrl":"https://community-static.tradeup.com/news/0b3045db9a2ba37916c82e771c62bd6c","redirectLinkEnabled":0,"redirectLink":"https://www.tigerbrokers.com.sg/activity/market/2023/stock-contest?adcode=StockContest2023","hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.06.13","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":5300},"crmLevel":8,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108651013,"type":1,"supId":0,"prevId":0,"content":"Wouldn’T tesla make u richer","text":"Wouldn’T tesla make u richer","html":"Wouldn’T tesla make u richer"}],"langContent":"EN"},{"id":108624367,"gmtCreate":1620020978359,"gmtModify":1704337497290,"author":{"id":"3560223458534375","authorId":"3560223458534375","name":"zzcloud88zz","avatar":"https://static.tigerbbs.com/c778f20822cc4b80c4c832a0775addbf","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":1,"idStr":"3560223458534375","authorIdStr":"3560223458534375"},"htmlText":"Likey likey","listText":"Likey likey","text":"Likey likey","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108624367","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108621800,"gmtCreate":1620020555200,"gmtModify":1704337491963,"author":{"id":"3581817420633828","authorId":"3581817420633828","name":"linrui","avatar":"https://static.tigerbbs.com/48b80059ee7e5428aa3ed30a6b83cfcd","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581817420633828","authorIdStr":"3581817420633828"},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108621800","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4206778,"gmtCreate":1620020625935,"gmtModify":1680786738765,"authorId":3581817420633828,"author":{"id":3581817420633828,"idStr":"3581817420633828","authorId":3581817420633828,"name":"linrui","avatar":"https://static.tigerbbs.com/48b80059ee7e5428aa3ed30a6b83cfcd","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108621800,"type":1,"supId":0,"prevId":0,"content":"Please like and comments. Thks.","text":"Please like and comments. Thks.","html":"Please like and comments. Thks."}],"langContent":"EN"},{"id":108660039,"gmtCreate":1620019104621,"gmtModify":1704337473594,"author":{"id":"3582700103615177","authorId":"3582700103615177","name":"AaronHeng","avatar":"https://static.tigerbbs.com/994c4b2af7dab72f2e4d223f3e9d3f2e","vip":1,"crmLevel":3,"crmLevelSwitch":1,"idStr":"3582700103615177","authorIdStr":"3582700103615177"},"htmlText":"Great&nbsp;","listText":"Great&nbsp;","text":"Great","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108660039","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4206608,"gmtCreate":1620019147079,"gmtModify":1680786739669,"authorId":3565663543754207,"author":{"id":3565663543754207,"idStr":"3565663543754207","authorId":3565663543754207,"name":"och","avatar":"https://static.tigerbbs.com/1c195b2a32a90ae2210984600e352644","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108660039,"type":1,"supId":0,"prevId":0,"content":"[微笑]","text":"[微笑]","html":"[微笑]"}],"langContent":"EN"},{"id":108687489,"gmtCreate":1620019082441,"gmtModify":1704337473269,"author":{"id":"3565663543754207","authorId":"3565663543754207","name":"och","avatar":"https://static.tigerbbs.com/1c195b2a32a90ae2210984600e352644","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3565663543754207","authorIdStr":"3565663543754207"},"htmlText":"Wow. Like and comment pls thx!","listText":"Wow. Like and comment pls thx!","text":"Wow. Like and comment pls thx!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108687489","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4206693,"gmtCreate":1620019846037,"gmtModify":1680786735897,"authorId":3580344868125116,"author":{"id":3580344868125116,"idStr":"3580344868125116","authorId":3580344868125116,"name":"gum","avatar":"https://static.tigerbbs.com/990e3e89d27ba7bcacf0155983f3fa87","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108687489,"type":1,"supId":0,"prevId":0,"content":"done. pls like and comment back. Thanks","text":"done. pls like and comment back. Thanks","html":"done. pls like and comment back. Thanks"}],"langContent":"EN"},{"id":108684895,"gmtCreate":1620018938517,"gmtModify":1704337471000,"author":{"id":"3570742778586711","authorId":"3570742778586711","name":"firefirefire","avatar":"https://community-static.tradeup.com/news/e33159cc1bfc6784fa479fe87a11fd33","vip":1,"hat":"https://static.tigerbbs.com/ae1f49570794979e009a5efdeb6f4789","crmLevel":7,"crmLevelSwitch":1,"idStr":"3570742778586711","authorIdStr":"3570742778586711"},"htmlText":"One must also be rich to invest in this share","listText":"One must also be rich to invest in this share","text":"One must also be rich to invest in this share","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108684895","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108685503,"gmtCreate":1620018888202,"gmtModify":1704337469523,"author":{"id":"3580912609173112","authorId":"3580912609173112","name":"Jameschia","avatar":"https://static.tigerbbs.com/dfcf35e99750b7debac77e42f75e8b0d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3580912609173112","authorIdStr":"3580912609173112"},"htmlText":"Up up up","listText":"Up up up","text":"Up up up","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108685503","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108682875,"gmtCreate":1620018821497,"gmtModify":1704337467588,"author":{"id":"3570742778586711","authorId":"3570742778586711","name":"firefirefire","avatar":"https://community-static.tradeup.com/news/e33159cc1bfc6784fa479fe87a11fd33","vip":1,"hat":"https://static.tigerbbs.com/ae1f49570794979e009a5efdeb6f4789","crmLevel":7,"crmLevelSwitch":1,"idStr":"3570742778586711","authorIdStr":"3570742778586711"},"htmlText":"Yes, I believe inti the near future","listText":"Yes, I believe inti the near future","text":"Yes, I believe inti the near future","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108682875","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108682057,"gmtCreate":1620018783979,"gmtModify":1704337467263,"author":{"id":"3574639401134105","authorId":"3574639401134105","name":"Mochizuki","avatar":"https://static.tigerbbs.com/8eff2450a3e5a8207c8f6dc5db664010","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3574639401134105","authorIdStr":"3574639401134105"},"htmlText":"Anything can make you rich if you know where tolook at the right time","listText":"Anything can make you rich if you know where tolook at the right time","text":"Anything can make you rich if you know where tolook at the right time","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108682057","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108686088,"gmtCreate":1620018729544,"gmtModify":1704337465624,"author":{"id":"3559283513621894","authorId":"3559283513621894","name":"Sap","avatar":"https://static.tigerbbs.com/2a00e2718679bd499f27764a78342e5c","vip":1,"crmLevel":6,"crmLevelSwitch":1,"idStr":"3559283513621894","authorIdStr":"3559283513621894"},"htmlText":"Why so","listText":"Why so","text":"Why so","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108686088","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108681571,"gmtCreate":1620018635293,"gmtModify":1704337463686,"author":{"id":"3582700345515891","authorId":"3582700345515891","name":"bobho","avatar":"https://static.tigerbbs.com/e2793dec827cc42d044e4a48ca80ee8b","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3582700345515891","authorIdStr":"3582700345515891"},"htmlText":"Latest","listText":"Latest","text":"Latest","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108681571","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108681923,"gmtCreate":1620018578262,"gmtModify":1704337463042,"author":{"id":"3576378489351818","authorId":"3576378489351818","name":"leo25","avatar":"https://static.tigerbbs.com/ab51c41dab6151e3e3dc34d5be666123","vip":1,"crmLevel":8,"crmLevelSwitch":0,"idStr":"3576378489351818","authorIdStr":"3576378489351818"},"htmlText":"Let's go","listText":"Let's go","text":"Let's go","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108681923","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108681037,"gmtCreate":1620018563829,"gmtModify":1704337463203,"author":{"id":"3561630674343706","authorId":"3561630674343706","name":"Whateverlah","avatar":"https://static.tigerbbs.com/f0c49774c0eff8252ee6e61046f40c1e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3561630674343706","authorIdStr":"3561630674343706"},"htmlText":"lol","listText":"lol","text":"lol","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108681037","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":108689267,"gmtCreate":1620018406659,"gmtModify":1704337461423,"author":{"id":"3581826058071830","authorId":"3581826058071830","name":"lowL","avatar":"https://static.tigerbbs.com/e402389af24b2e459cf28cbcd53a4715","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581826058071830","authorIdStr":"3581826058071830"},"htmlText":"No thank you, next","listText":"No thank you, next","text":"No thank you, next","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108689267","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4206564,"gmtCreate":1620018749325,"gmtModify":1680786733550,"authorId":3574639401134105,"author":{"id":3574639401134105,"idStr":"3574639401134105","authorId":3574639401134105,"name":"Mochizuki","avatar":"https://static.tigerbbs.com/8eff2450a3e5a8207c8f6dc5db664010","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108689267,"type":1,"supId":0,"prevId":0,"content":"Ever the Warren Buffet swimming against the current eh ","text":"Ever the Warren Buffet swimming against the current eh ","html":"Ever the Warren Buffet swimming against the current eh "}],"langContent":"EN"},{"id":108680506,"gmtCreate":1620018323405,"gmtModify":1704337460286,"author":{"id":"3571359088752748","authorId":"3571359088752748","name":"StephenC","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3571359088752748","authorIdStr":"3571359088752748"},"htmlText":"Hmmm will be stiff competition with Tencent &amp; Alibaba &amp; some Chinese govt&nbsp;regulation issues ?","listText":"Hmmm will be stiff competition with Tencent &amp; Alibaba &amp; some Chinese govt&nbsp;regulation issues ?","text":"Hmmm will be stiff competition with Tencent & Alibaba & some Chinese govt regulation issues ?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/108680506","repostId":1121605010,"repostType":4,"repost":{"id":"1121605010","kind":"news","pubTimestamp":1620014543,"share":"https://ttm.financial/m/news/1121605010?lang=&edition=fundamental","pubTime":"2021-05-03 12:02","market":"hk","language":"en","title":"4 Reasons Baidu Could Make You Rich","url":"https://stock-news.laohu8.com/highlight/detail?id=1121605010","media":"seekingalpha","summary":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P","content":"Summary\n<ul>\n <li>Strong corporate earnings and great economic data keeps the market grinding higher. The S&amp;P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.</li>\n <li>Fortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.</li>\n <li>Baidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.</li>\n <li>In recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.</li>\n <li>I recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/fce5597f98f5e2431c73edea32173192\" tg-width=\"1536\" tg-height=\"693\">Photo by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Name</td>\n <td>Returns</td>\n <td>Time Horizon</td>\n <td>Most Famous For</td>\n </tr>\n <tr>\n <td>Jim Simmons (Co-Founder Renaissance Technologies)</td>\n <td>71.8% CAGR</td>\n <td>1994 to 2014 (best investing record ever recorded)</td>\n <td>Pure Quant Based Investing</td>\n </tr>\n <tr>\n <td>Joel Greenblatt</td>\n <td>40% CAGR</td>\n <td>21 years at Gotham Capital</td>\n <td>\"Above-Average Quality Companies At Below-Average Prices\"</td>\n </tr>\n <tr>\n <td>Peter Lynch</td>\n <td>29.2% CAGR at Fidelity's Magellan Fund</td>\n <td>1977 to 1990 (13 years)</td>\n <td>\"Growth At A Reasonable Price\"</td>\n </tr>\n <tr>\n <td>Bill Miller (Legg Mason Value Trust 1990 to 2006)</td>\n <td>22.8% CAGR and beat the S&amp;P 500 for 15 consecutive years</td>\n <td>16 years</td>\n </tr>\n <tr>\n <td>Warren Buffett</td>\n <td>20.8% CAGR at Berkshire</td>\n <td>55 Years</td>\n <td>Greedy when others are fearful</td>\n </tr>\n <tr>\n <td>Benjamin Graham</td>\n <td>20% CAGR vs 12% S&amp;P 500</td>\n <td>1934 to 1956 (22 years)</td>\n <td>Margin of Safety</td>\n </tr>\n <tr>\n <td>Edward Thorp</td>\n <td>20+% CAGR</td>\n <td>over 30 years</td>\n <td>invented card counting,pure statistically-based investing</td>\n </tr>\n <tr>\n <td>Charlie Munger</td>\n <td>19.80%</td>\n <td>1962 to 1975</td>\n <td>Wonderful companies at fair prices</td>\n </tr>\n <tr>\n <td>Howard Marks</td>\n <td>19% CAGR</td>\n <td>Since 1995</td>\n <td>Valuation Mean Reversion</td>\n </tr>\n <tr>\n <td>Anne Scheiber</td>\n <td>18.3% CAGR</td>\n <td>50 years</td>\n <td>Turned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.</td>\n </tr>\n <tr>\n <td>John Templeton</td>\n <td>300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992</td>\n <td>38 years</td>\n <td>Market Cycles</td>\n </tr>\n <tr>\n <td>Carl Icahn</td>\n <td>14.6% CAGR vs 5.6% S&amp;P 500</td>\n <td>2001 to 2016 (15 Years)</td>\n </tr>\n <tr>\n <td>David Swenson</td>\n <td>13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&amp;P 500</td>\n <td>30 years</td>\n <td>Alternative Asset Allocation</td>\n </tr>\n <tr>\n <td>Geraldine Weiss</td>\n <td>11.2% vs 9.8% S&amp;P 500</td>\n <td>37 years</td>\n <td>Best risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)</td>\n </tr>\n </tbody>\n</table>\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n<ul>\n <li>Portfolio risk-management</li>\n <li>safety</li>\n <li>quality</li>\n <li>yield</li>\n <li>growth</li>\n <li>and value</li>\n</ul>\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n<blockquote>\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n</blockquote>\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n<img src=\"https://static.tigerbbs.com/d78b7d254783a9f8afc60962aa7d03ee\" tg-width=\"640\" tg-height=\"390\">\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n<blockquote>\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n</blockquote>\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n<img src=\"https://static.tigerbbs.com/e09c272fe0a5f7a5052ea3021630d643\" tg-width=\"640\" tg-height=\"390\">\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n<blockquote>\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n</blockquote>\n<blockquote>\n - Paraphrase of Jerry Rice\n</blockquote>\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n<img src=\"https://static.tigerbbs.com/a6f826f65373ae3a2e4061f906c54bb2\" tg-width=\"640\" tg-height=\"508\">\n<img src=\"https://static.tigerbbs.com/5868a6e0418dbe8596b0c667120b3a53\" tg-width=\"640\" tg-height=\"440\">(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n<ul>\n <li>dividend safety</li>\n <li>balance sheet strength</li>\n <li>short and long-term bankruptcy risk</li>\n <li>accounting and corporate fraud risk</li>\n <li>profitability and business model</li>\n <li>cost of capital</li>\n <li>long-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)</li>\n <li>management quality</li>\n <li>dividend friendly corporate culture/income dependability</li>\n <li>long-term total returns (a Ben Graham sign of quality)</li>\n</ul>\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n<ul>\n <li>decades of empirical data</li>\n <li>the experience of the greatest investors in history</li>\n <li>eight rating agencies</li>\n <li>and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.</li>\n</ul>\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Quality Score</td>\n <td>Meaning</td>\n <td>Max Invested Capital Risk Recommendation</td>\n <td>Margin Of Safety Potentially Good Buy</td>\n <td>Strong Buy</td>\n <td>Very Strong Buy</td>\n <td>Ultra-Value Buy</td>\n </tr>\n <tr>\n <td>3</td>\n <td>Terrible, Very High Long-Term Bankruptcy Risk</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>4</td>\n <td>Very Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>Poor</td>\n <td>0%</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n <td>NA (avoid)</td>\n </tr>\n <tr>\n <td>6</td>\n <td>Below-Average, Fallen Angels (very speculative)</td>\n <td>1%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n <td>75%</td>\n </tr>\n <tr>\n <td>7</td>\n <td>Average (Relative to S&amp;P 500)</td>\n <td>2.5%</td>\n <td>35%</td>\n <td>45%</td>\n <td>55%</td>\n <td>65%</td>\n </tr>\n <tr>\n <td>8</td>\n <td>Above-Average</td>\n <td>5% (unless speculative then 2.5%)</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n <td>55% to 60%</td>\n </tr>\n <tr>\n <td>9</td>\n <td>Blue-Chip</td>\n <td>7% (unlessspeculativethen2.5%)</td>\n <td>20% to25%</td>\n <td>30% to35%</td>\n <td>40% to45%</td>\n <td>50% to55%</td>\n </tr>\n <tr>\n <td>10</td>\n <td>SWAN (a higher caliber of Blue-Chip)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n <td>45% to 50%</td>\n </tr>\n <tr>\n <td>11</td>\n <td>Super SWAN (exceptionally dependable blue-chips)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>10% to 15%</td>\n <td>20% to 25%</td>\n <td>30% to 35%</td>\n <td>40% to 45%</td>\n </tr>\n <tr>\n <td>12</td>\n <td>Ultra SWAN (as close to perfect companies as exist)</td>\n <td>7% (unless speculative then 2.5%)</td>\n <td>5% to 10%</td>\n <td>15% to 20%</td>\n <td>25% to 30%</td>\n <td>35% to 40%</td>\n </tr>\n </tbody>\n</table>\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Dividend Kings Safety Score (75 Safety Metric Model)</td>\n <td>Approximate Dividend Cut Risk (Average Recession)</td>\n <td>Approximate Dividend Cut Risk In Pandemic Level Recession</td>\n </tr>\n <tr>\n <td>1 (very unsafe)</td>\n <td>0% to 20%</td>\n <td>over 4%</td>\n <td>16+%</td>\n </tr>\n <tr>\n <td>2 (unsafe average)</td>\n <td>21% to 40%</td>\n <td>over 2%</td>\n <td>8% to 16%</td>\n </tr>\n <tr>\n <td>3 (average)</td>\n <td>41% to 60%</td>\n <td>2%</td>\n <td>4% to 8%</td>\n </tr>\n <tr>\n <td>4 (safe)</td>\n <td>61% to 80%</td>\n <td>1%</td>\n <td>2% to 4%</td>\n </tr>\n <tr>\n <td>5 (very safe)</td>\n <td>81% to 100%</td>\n <td>0.5%</td>\n <td>1% to 2%</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>76%</td>\n <td>A stable rating from Fitch, A3 (A- equivalent) stable rating Moody's</td>\n <td>0.66% to 2.5% 30-year default/bankruptcy risk</td>\n </tr>\n </tbody>\n</table>\nLong-Term Dependability\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Company</td>\n <td>DK Long-Term Dependability Score</td>\n <td>Interpretation</td>\n <td>Points</td>\n </tr>\n <tr>\n <td>S&amp;P 500/Industry Average</td>\n <td>58%</td>\n <td>Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Non-Dependable Companies</td>\n <td>31% or below</td>\n <td>Poor Dependability</td>\n <td>1</td>\n </tr>\n <tr>\n <td>Relatively Dependable Companies</td>\n <td>32% to 70%</td>\n <td>Below to Above-Average Dependability</td>\n <td>2</td>\n </tr>\n <tr>\n <td>Very Dependable Companies</td>\n <td>71% to 80%</td>\n <td>Very Dependable</td>\n <td>3</td>\n </tr>\n <tr>\n <td>Exceptionally Dependable Companies</td>\n <td>81% or higher</td>\n <td>Exceptional Dependability</td>\n <td>4</td>\n </tr>\n <tr>\n <td>BIDU</td>\n <td>67%</td>\n <td>Above-Average Dependability</td>\n <td>2</td>\n </tr>\n </tbody>\n</table>\nOverall Quality\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>BIDU</td>\n <td>Final Score</td>\n <td>Rating</td>\n </tr>\n <tr>\n <td>Safety</td>\n <td>76%</td>\n <td>4/5</td>\n </tr>\n <tr>\n <td>Business Model</td>\n <td>80%</td>\n <td>3/3</td>\n </tr>\n <tr>\n <td>Dependability</td>\n <td>67%</td>\n <td>2/4</td>\n </tr>\n <tr>\n <td>Total</td>\n <td>73%</td>\n <td>9/12 Speculative Blue-Chip</td>\n </tr>\n </tbody>\n</table>\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n<img src=\"https://static.tigerbbs.com/927ef17638b4bbf9db4e34f1aeb01a61\" tg-width=\"640\" tg-height=\"241\">(Source: DK Safety &amp; Quality Tool) updated at the end of each day, sorted by overall quality score\n<ul>\n <li>green = potentially good buy or better</li>\n <li>blue = potentially reasonable buy</li>\n <li>yellow = hold</li>\n <li>red = potential trim/sell</li>\n</ul>\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n<ul>\n <li>all dividend champions</li>\n <li>all dividend aristocrats</li>\n <li>all dividend kings</li>\n <li>all 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)</li>\n <li>numerous global aristocrats (such as BTI, ENB, and NVS)</li>\n</ul>\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n<ul>\n <li>Qualcomm (QCOM)</li>\n <li>Becton, Dickinson and Company (BDX) - dividend aristocrat</li>\n <li>W. P. Carey (WPC)</li>\n <li>Sonoco Products (SON) - dividend champion</li>\n <li>H.B. Fuller (FUL) - dividend king</li>\n <li>MetLife (MET)</li>\n <li>Digital Realty Trust (DLR)</li>\n <li>Leggett &amp; Platt (LEG) - dividend aristocrat</li>\n <li>V.F. Corp (VFC) - dividend aristocrat</li>\n <li>Bank of New York Mellon (BK)</li>\n</ul>\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n<img src=\"https://static.tigerbbs.com/d4c7bc8d9da039967a0ce9e435f7b6eb\" tg-width=\"449\" tg-height=\"462\">(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n<ul>\n <li>F-score measures short-term bankruptcy risk</li>\n <li>Z-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)</li>\n <li>M-score measures accounting fraud risk (with 76% historical accuracy)</li>\n</ul>\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n<img src=\"https://static.tigerbbs.com/0593cdfc392caf38a9d7ca42c482c359\" tg-width=\"640\" tg-height=\"245\">\n<img src=\"https://static.tigerbbs.com/6110ac3a73c5c935e0778da21e6eb62e\" tg-width=\"640\" tg-height=\"297\">(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n<ul>\n <li>its safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs</li>\n</ul>\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n<img src=\"https://static.tigerbbs.com/d4868372d29cef8d5b07fc5a538fb58e\" tg-width=\"640\" tg-height=\"273\">\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n<ul>\n <li>credit ratings are one of the best qualitative quality proxies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/b0c8a6a2913d554a5c9780f869d7a887\" tg-width=\"445\" tg-height=\"430\">(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Industry Percentile</td>\n <td>Major Interactive Media Companies More Profitable Than BIDU (Out of 543)</td>\n </tr>\n <tr>\n <td>Operating Margin</td>\n <td>67.35</td>\n <td>177</td>\n </tr>\n <tr>\n <td>Net Margin</td>\n <td>81.26</td>\n <td>102</td>\n </tr>\n <tr>\n <td>Return On Equity</td>\n <td>67.86</td>\n <td>175</td>\n </tr>\n <tr>\n <td>Return On Assets</td>\n <td>68.47</td>\n <td>171</td>\n </tr>\n <tr>\n <td>Return On Capital</td>\n <td>69.61</td>\n <td>165</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>70.91</td>\n <td>158</td>\n </tr>\n </tbody>\n</table>\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n<ul>\n <li>for example, returns on equity are expected to rise 10% by 2024</li>\n</ul>\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n<ul>\n <li>operating income (EBIT)/operating capital (the money it takes to run the business for a year)</li>\n</ul>\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n<img src=\"https://static.tigerbbs.com/a5d43fa9d5032a24362f75054f2a9e93\" tg-width=\"640\" tg-height=\"292\">(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>SG&amp;A</td>\n <td>R&amp;D</td>\n <td>Capex</td>\n <td>Total Growth Spending</td>\n <td>Sales</td>\n <td>Growth Spending/Sales</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$2,792</td>\n <td>$3,016</td>\n <td>$993</td>\n <td>$4,009</td>\n <td>$16,548</td>\n <td>24.23%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$3,574</td>\n <td>$3,554</td>\n <td>$1,893</td>\n <td>$5,447</td>\n <td>$19,517</td>\n <td>27.91%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$3,974</td>\n <td>$4,062</td>\n <td>$2,220</td>\n <td>$6,282</td>\n <td>$22,235</td>\n <td>28.25%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$5,049</td>\n <td>$5,858</td>\n <td>$2,719</td>\n <td>$8,577</td>\n <td>$25,258</td>\n <td>33.96%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>NA</td>\n <td>NA</td>\n <td>$1,504</td>\n <td>NA</td>\n <td>$30,071</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2025</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>2026</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>21.83%</td>\n <td>24.77%</td>\n <td>10.94%</td>\n <td>28.85%</td>\n <td>16.10%</td>\n <td>NA</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>Sales</td>\n <td>FCF</td>\n <td>EBITDA</td>\n <td>EBIT (Operating Income)</td>\n <td>Net Income</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>$16,548</td>\n <td>$2,106</td>\n <td>$4,251</td>\n <td>$2,216</td>\n <td>$3,473</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>$19,517</td>\n <td>$3,947</td>\n <td>$4,734</td>\n <td>$2,629</td>\n <td>$2,760</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>$22,235</td>\n <td>$5,013</td>\n <td>$5,812</td>\n <td>$3,400</td>\n <td>$3,381</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>$25,258</td>\n <td>$5,854</td>\n <td>$6,730</td>\n <td>$4,163</td>\n <td>$4,226</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>$30,071</td>\n <td>$7,421</td>\n <td>NA</td>\n <td>$6,195</td>\n <td>$5,268</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>16.10%</td>\n <td>37.01%</td>\n <td>16.55%</td>\n <td>29.31%</td>\n <td>10.98%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Year</td>\n <td>FCF Margin</td>\n <td>EBITDA Margin</td>\n <td>EBIT (Operating) Margin</td>\n <td>Net Margin</td>\n </tr>\n <tr>\n <td>2020</td>\n <td>12.7%</td>\n <td>25.7%</td>\n <td>13.4%</td>\n <td>21.0%</td>\n </tr>\n <tr>\n <td>2021</td>\n <td>20.2%</td>\n <td>24.3%</td>\n <td>13.5%</td>\n <td>14.1%</td>\n </tr>\n <tr>\n <td>2022</td>\n <td>22.5%</td>\n <td>26.1%</td>\n <td>15.3%</td>\n <td>15.2%</td>\n </tr>\n <tr>\n <td>2023</td>\n <td>23.2%</td>\n <td>26.6%</td>\n <td>16.5%</td>\n <td>16.7%</td>\n </tr>\n <tr>\n <td>2024</td>\n <td>24.7%</td>\n <td>NA</td>\n <td>20.6%</td>\n <td>17.5%</td>\n </tr>\n <tr>\n <td>Annualized Growth</td>\n <td>18.01%</td>\n <td>1.23%</td>\n <td>11.37%</td>\n <td>-4.42%</td>\n </tr>\n </tbody>\n</table>\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n<img src=\"https://static.tigerbbs.com/ee8691866fef56c1dd17062657e10811\" tg-width=\"640\" tg-height=\"320\">(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>2020 Actual Growth</td>\n <td>2021 consensus growth</td>\n <td>2022 consensus growth</td>\n <td>2023 consensus growth</td>\n </tr>\n <tr>\n <td>EPS</td>\n <td>31%</td>\n <td>7%</td>\n <td>18%</td>\n <td>16%</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF)</td>\n <td>124%</td>\n <td>22%</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>-14%</td>\n <td>59%</td>\n <td>31%</td>\n <td>7%</td>\n </tr>\n <tr>\n <td>Free cash flow</td>\n <td>96%</td>\n <td>85%</td>\n <td>22%</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>-18%</td>\n <td>53%</td>\n <td>27%</td>\n <td>24%</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>130%</td>\n <td>26%</td>\n <td>26%</td>\n <td>19%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n<img src=\"https://static.tigerbbs.com/bdfa536609dc32efe57d7af85154ddbf\" tg-width=\"640\" tg-height=\"412\">(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n<img src=\"https://static.tigerbbs.com/d0a582df968d9cfaf4a09f2f2984f522\" tg-width=\"640\" tg-height=\"373\">\n<img src=\"https://static.tigerbbs.com/72ab775d253a2fbce4a1a5001922e0b8\" tg-width=\"640\" tg-height=\"394\">(Source: F.A.S.T. Graphs, FactSet Research)\n<ul>\n <li>16.0% to 17.5% long-term growth consensus range</li>\n <li>6% to 28% growth consensus range adjusted for historical margin of error</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/6ae4ef54819e7f58c95b2f21ced20393\" tg-width=\"640\" tg-height=\"336\"><img src=\"https://static.tigerbbs.com/705d5218e7d882c4c52948d4f47fbb5e\" tg-width=\"640\" tg-height=\"341\">\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n<ul>\n <li>margins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside</li>\n <li>the long-term growth consensus range: 16% to 18% CAGR</li>\n <li>the margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/73c38a8847c12ffd67928559c978ff18\" tg-width=\"640\" tg-height=\"407\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n<ul>\n <li>and thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon</li>\n</ul>\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n<img src=\"https://static.tigerbbs.com/3f3ad1e7e41458b1bdc4f379d7917692\" tg-width=\"640\" tg-height=\"414\">(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n<img src=\"https://static.tigerbbs.com/fbd2ab20e70f34f53bc7768feb9b6a24\" tg-width=\"640\" tg-height=\"334\">(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Metric</td>\n <td>Historical Fair Value (12-years)</td>\n <td>2020</td>\n <td>2021</td>\n <td>2022</td>\n <td>2023</td>\n </tr>\n <tr>\n <td>Earnings</td>\n <td>25.0</td>\n <td>$243.87</td>\n <td>$261.27</td>\n <td>$307.91</td>\n <td>$357.77</td>\n </tr>\n <tr>\n <td>Owner Earnings (Buffett smoothed out FCF) - 10 yr</td>\n <td>23.5</td>\n <td>$324.46</td>\n <td>$394.46</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Operating Cash Flow</td>\n <td>19.9</td>\n <td>$202.33</td>\n <td>$321.22</td>\n <td>$420.37</td>\n <td>$448.64</td>\n </tr>\n <tr>\n <td>Free Cash Flow (11-yr)</td>\n <td>27.5</td>\n <td>$220.77</td>\n <td>$408.53</td>\n <td>$497.28</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>EBITDA</td>\n <td>22.0</td>\n <td>$190.60</td>\n <td>$291.18</td>\n <td>$370.80</td>\n <td>$459.36</td>\n </tr>\n <tr>\n <td>EBIT (operating income)</td>\n <td>34.5</td>\n <td>$207.78</td>\n <td>$261.14</td>\n <td>$328.78</td>\n <td>$392.83</td>\n </tr>\n <tr>\n <td>Average</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n <td>$410.40</td>\n </tr>\n <tr>\n <td>Current Price</td>\n <td>$215.83</td>\n </tr>\n <tr>\n <td>Discount To Fair Value</td>\n <td>3.91%</td>\n <td>30.98%</td>\n <td>42.26%</td>\n <td>47.41%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value</td>\n <td>4%</td>\n <td>45%</td>\n <td>73%</td>\n <td>90%</td>\n </tr>\n </tbody>\n</table>\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n<ul>\n <li>$350 is the median 12-month price target</li>\n <li>65% upside potential over the next 12 months according to analysts</li>\n</ul>\nAnd that guestimate is 100% justified by fundamentals.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating</td>\n <td>Margin Of Safety For Speculative 9/12 Blue-Chip Quality Companies</td>\n <td>2020 Price</td>\n <td>2021 Price</td>\n <td>2022 Price</td>\n </tr>\n <tr>\n <td>Potentially Reasonable Buy</td>\n <td>0%</td>\n <td>$224.60</td>\n <td>$312.71</td>\n <td>$373.81</td>\n </tr>\n <tr>\n <td>Potentially Good Buy</td>\n <td>25%</td>\n <td>$168.45</td>\n <td>$234.53</td>\n <td>$280.35</td>\n </tr>\n <tr>\n <td>Potentially Strong Buy</td>\n <td>35%</td>\n <td>$145.99</td>\n <td>$203.26</td>\n <td>$242.97</td>\n </tr>\n <tr>\n <td>Potentially Very Strong Buy</td>\n <td>45%</td>\n <td>$123.53</td>\n <td>$171.99</td>\n <td>$205.59</td>\n </tr>\n <tr>\n <td>Potentially Ultra-Value Buy</td>\n <td>55%</td>\n <td>$101.07</td>\n <td>$140.72</td>\n <td>$168.21</td>\n </tr>\n <tr>\n <td>Currently</td>\n <td>$213.41</td>\n <td>5%</td>\n <td>32%</td>\n <td>43%</td>\n </tr>\n <tr>\n <td>Upside To Fair Value (Not Including Dividends)</td>\n <td>5%</td>\n <td>47%</td>\n <td>75%</td>\n </tr>\n </tbody>\n</table>\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/15f5606b2eaa042608497f68998a69cc\" tg-width=\"640\" tg-height=\"385\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n<ul>\n <li>75% total returns</li>\n <li>23.3% CAGR returns</li>\n <li>vs -1.3% CAGR S&amp;P 500</li>\n</ul>\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&amp;P 500 by 78% over the next three years.\n<img src=\"https://static.tigerbbs.com/7be8ed919f810734d99f50b4b14741dd\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n<img src=\"https://static.tigerbbs.com/d9aef71a5e564b122341a52dec05bb34\" tg-width=\"640\" tg-height=\"405\">(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n<ul>\n <li>179% total returns</li>\n <li>19.8% CAGR</li>\n <li>vs 4.5% CAGR S&amp;P 500</li>\n <li>4.4X better than the market's consensus return potential</li>\n</ul>\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n<img src=\"https://static.tigerbbs.com/935c135e000c240df768640b47826e5c\" tg-width=\"640\" tg-height=\"453\">(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n<ul>\n <li>0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)</li>\n <li>6% to 28% CAGR range</li>\n <li>vs 7.8% for the S&amp;P and 10.8% for the dividend aristocrats</li>\n</ul>\nBaidu Total Returns Since 2006\n<img src=\"https://static.tigerbbs.com/cfe7969e52431f689a9737c4c48401e1\" tg-width=\"640\" tg-height=\"124\"><img src=\"https://static.tigerbbs.com/08f72f9d45d8f32d950ea367c84cb531\" tg-width=\"640\" tg-height=\"297\">\n<img src=\"https://static.tigerbbs.com/40bd03cb49698c42f76664151bd05cf5\" tg-width=\"640\" tg-height=\"298\">(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&amp;P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>5.8% LT Inflation-Adjusted Returns (S&amp;P Consensus)</td>\n <td>8.8% Inflation-Adjusted Returns (aristocrat consensus)</td>\n <td>15.5% Inflation-Adjusted Returns (BIDU consensus)</td>\n </tr>\n <tr>\n <td>5</td>\n <td>$1,325.65</td>\n <td>$1,524.56</td>\n <td>$1,336.05</td>\n </tr>\n <tr>\n <td>10</td>\n <td>$1,757.34</td>\n <td>$2,324.28</td>\n <td>$2,746.21</td>\n </tr>\n <tr>\n <td>15</td>\n <td>$2,329.62</td>\n <td>$3,543.51</td>\n <td>$5,644.73</td>\n </tr>\n <tr>\n <td>20</td>\n <td>$3,088.26</td>\n <td>$5,402.29</td>\n <td>$11,602.54</td>\n </tr>\n <tr>\n <td>25</td>\n <td>$4,093.94</td>\n <td>$8,236.11</td>\n <td>$23,848.60</td>\n </tr>\n <tr>\n <td>30</td>\n <td>$5,427.13</td>\n <td>$12,556.45</td>\n <td>$49,019.95</td>\n </tr>\n <tr>\n <td>35</td>\n <td>$7,194.46</td>\n <td>$19,143.06</td>\n <td>$100,758.76</td>\n </tr>\n <tr>\n <td>40</td>\n <td>$9,537.33</td>\n <td>$29,184.74</td>\n <td>$207,106.02</td>\n </tr>\n <tr>\n <td>45</td>\n <td>$12,643.14</td>\n <td>$44,493.88</td>\n <td>$425,699.02</td>\n </tr>\n <tr>\n <td>50</td>\n <td>$16,760.36</td>\n <td>$67,833.58</td>\n <td>$875,009.10</td>\n </tr>\n </tbody>\n</table>\nThe ability to grow 2X to 3X as fast as the S&amp;P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Time Frame (Years)</td>\n <td>Ratio S&amp;P vs Aristocrat Consensus</td>\n <td>Ratio S&amp;P vs BIDU consensus</td>\n </tr>\n <tr>\n <td>5</td>\n <td>1.15</td>\n <td>1.01</td>\n </tr>\n <tr>\n <td>10</td>\n <td>1.32</td>\n <td>1.56</td>\n </tr>\n <tr>\n <td>15</td>\n <td>1.52</td>\n <td>2.42</td>\n </tr>\n <tr>\n <td>20</td>\n <td>1.75</td>\n <td>3.76</td>\n </tr>\n <tr>\n <td>25</td>\n <td>2.01</td>\n <td>5.83</td>\n </tr>\n <tr>\n <td>30</td>\n <td>2.31</td>\n <td>9.03</td>\n </tr>\n <tr>\n <td>35</td>\n <td>2.66</td>\n <td>14.01</td>\n </tr>\n <tr>\n <td>40</td>\n <td>3.06</td>\n <td>21.72</td>\n </tr>\n <tr>\n <td>45</td>\n <td>3.52</td>\n <td>33.67</td>\n </tr>\n <tr>\n <td>50</td>\n <td>4.05</td>\n <td>52.21</td>\n </tr>\n </tbody>\n</table>\nOver the long term, the aristocrats are expected to quadruple the S&amp;P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&amp;P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n<blockquote>\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n</blockquote>\n<blockquote>\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n</blockquote>\n<blockquote>\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n</blockquote>\n<blockquote>\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n</blockquote>\n<blockquote>\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n</blockquote>\n<blockquote>\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n</blockquote>\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n<blockquote>\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n</blockquote>\n<blockquote>\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n</blockquote>\n<blockquote>\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n</blockquote>\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n<blockquote>\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n</blockquote>\n<blockquote>\n Search is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n</blockquote>\n<blockquote>\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on&nbsp;\n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n</blockquote>\n<blockquote>\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n</blockquote>\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n<blockquote>\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for&nbsp;seven straight quarters.\n</blockquote>\n<blockquote>\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like&nbsp;\n Tencent&nbsp;and&nbsp;\n Bilibili --both expanded&nbsp;their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n</blockquote>\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n<ul>\n <li>compared to a $10,000 position in Alphabet (GOOG)</li>\n <li>and an&nbsp;$89,000 investment into Alibaba</li>\n <li>and a&nbsp;$200,000 investment into Amazon(AMZN)</li>\n</ul>\nAnd of course, we can't forget about the risks surrounding management and governance.\n<blockquote>\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n</blockquote>\n<blockquote>\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n</blockquote>\n<blockquote>\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n</blockquote>\n<blockquote>\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n</blockquote>\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n<blockquote>\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights&nbsp;as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n</blockquote>\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n<blockquote>\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n</blockquote>\n<blockquote>\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n</blockquote>\n<blockquote>\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its&nbsp;\n operating margin declining from 26.1% in 2014 to 14.2% in 2016&nbsp;but they did not gain as much scale as Meituan.\n</blockquote>\n<blockquote>\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n</blockquote>\n<blockquote>\n Baidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n</blockquote>\n<blockquote>\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n</blockquote>\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n<blockquote>\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a&nbsp;\n variable interest entity structure&nbsp;designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n</blockquote>\n<blockquote>\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government&nbsp;and believe that Baidu will consider a China depositary receipt listing in the future.\n</blockquote>\n<blockquote>\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n</blockquote>\n<blockquote>\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n</blockquote>\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n<ul>\n <li>39 analysts that cover BIDU and collectively know it better than anyone other than management</li>\n <li>and whether or not scary headlines meaningfully alter the investment thesis</li>\n <li>2 credit rating agencies</li>\n <li>3 ESG risk rating agencies</li>\n <li>44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks</li>\n</ul>\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n<ul>\n <li>BlackRock - #1 asset manager in the world</li>\n <li>MSCI - #1 indexing giant</li>\n <li>Morningstar</li>\n <li>Reuters'/Refinitiv</li>\n <li>ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth</li>\n <li>S&amp;P</li>\n <li>Fitch</li>\n <li>Moody's</li>\n <li>DBRS (Canadian credit rating agency)</li>\n <li>AM Best (insurance industry rating agency)</li>\n <li>Bank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>Bloomberg</li>\n <li>FactSet Research</li>\n <li>State Street - one of the largest custodial banks on earth</li>\n <li>Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch</li>\n <li>NAREIT</li>\n</ul>\n<blockquote>\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n</blockquote>\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n<blockquote>\n Punchline: higher ROE, lower risk &amp; lower cost of capital\n</blockquote>\n<blockquote>\n We find that companies with greater gender diversity at the board/management level typically see&nbsp;\n higher ROE and lower earnings risk than peers.\n</blockquote>\n<blockquote>\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a&nbsp;\n ~20% premium on P/E&nbsp;on an overall and sector-neutral basis.\n</blockquote>\n<blockquote>\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n</blockquote>\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n<table>\n <colgroup></colgroup>\n <tbody>\n <tr>\n <td>Rating Agency</td>\n <td>Industry Percentile</td>\n <td>Rating Agency Classification</td>\n </tr>\n <tr>\n <td>MSCI</td>\n <td>54.0%</td>\n <td>BB Below-Average</td>\n </tr>\n <tr>\n <td>Morningstar/Sustainalytics</td>\n <td>40.2%</td>\n <td>24.4/100 Medium Risk</td>\n </tr>\n <tr>\n <td>Reuters'/Refinitiv (Combined ESG Rating)</td>\n <td>52.6%</td>\n <td>Satisfactory</td>\n </tr>\n <tr>\n <td>S&amp;P</td>\n <td>NA</td>\n <td>NA</td>\n </tr>\n <tr>\n <td>Consensus</td>\n <td>48.9%</td>\n <td>Average</td>\n </tr>\n </tbody>\n</table>\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n<ul>\n <li>which is actually the highest ESG score of any of the big China tech stocks</li>\n <li>ESG investors probably want to avoid Chinese companies</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/afa54b995a935d581ed79c58fb5d4920\" tg-width=\"640\" tg-height=\"491\"><img src=\"https://static.tigerbbs.com/464e286a82c2e31d4b5bc2a67525beb8\" tg-width=\"640\" tg-height=\"229\">\n<img src=\"https://static.tigerbbs.com/0b0b24c0262471afee43fa88dfe8da44\" tg-width=\"640\" tg-height=\"319\">(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n<img src=\"https://static.tigerbbs.com/81242ba4340325a61c591a15f1e0aed7\" tg-width=\"640\" tg-height=\"453\">(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n<img src=\"https://static.tigerbbs.com/01d6eec0412fa9351dcb8716bbbbc1a4\" tg-width=\"640\" tg-height=\"540\">(Source: BIDU IR)\n<blockquote>\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n</blockquote>\n<blockquote>\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n</blockquote>\n<blockquote>\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n</blockquote>\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n<img src=\"https://static.tigerbbs.com/5588fc730d2ccc5631369a46ea7bdd1b\" tg-width=\"640\" tg-height=\"456\"><img src=\"https://static.tigerbbs.com/2b3f779db4dbecb7bcc0e0880b6f4ae3\" tg-width=\"640\" tg-height=\"293\">\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n<img src=\"https://static.tigerbbs.com/ea303ae18b648b1beee3ba4bb69b599c\" tg-width=\"640\" tg-height=\"308\">(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n<ul>\n <li>BIDU scores rather poorly on governance and environmental issues</li>\n</ul>\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&amp;P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>4 Reasons Baidu Could Make You Rich</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n4 Reasons Baidu Could Make You Rich\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-03 12:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\n...\n\n<a href=\"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"09888":"百度集团-SW","BIDU":"百度"},"source_url":"https://seekingalpha.com/article/4423641-4-reasons-baidu-make-you-rich","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1121605010","content_text":"Summary\n\nStrong corporate earnings and great economic data keeps the market grinding higher. The S&P 500 is 36% historically overvalued and has just 28% upside potential over the next five years.\nFortunately, whatever your goals, yield, value, growth, or total returns, something great is always on sale if you know where to look.\nBaidu is the Google of China, and planning on increasing spending by 30% annually over the coming years, focusing on AI, driverless cars, and streaming.\nIn recent weeks it plunged 40%, partially due to forced hedge fund margin call selling. This creates a potentially exceptional opportunity to be \"greedy when others are fearful\" about this speculative hyper-growth blue-chip.\nI recently bought a starter position in Baidu, because it's 31% undervalued and analysts think it could double in the next three years, and almost triple over the next five. For anyone comfortable with the complex risk profile of Chinese tech giants, Baidu is one of the most reasonable and prudent hyper-growth blue-chips you can buy today.\n\nPhoto by DNY59/iStock via Getty Images\nOver seven years as an analyst I've studied the greatest investors in history, to see what strategies made them legends.\nGreatest Investors In History: Masters Of Financial Science\n\n\n\n\nName\nReturns\nTime Horizon\nMost Famous For\n\n\nJim Simmons (Co-Founder Renaissance Technologies)\n71.8% CAGR\n1994 to 2014 (best investing record ever recorded)\nPure Quant Based Investing\n\n\nJoel Greenblatt\n40% CAGR\n21 years at Gotham Capital\n\"Above-Average Quality Companies At Below-Average Prices\"\n\n\nPeter Lynch\n29.2% CAGR at Fidelity's Magellan Fund\n1977 to 1990 (13 years)\n\"Growth At A Reasonable Price\"\n\n\nBill Miller (Legg Mason Value Trust 1990 to 2006)\n22.8% CAGR and beat the S&P 500 for 15 consecutive years\n16 years\n\n\nWarren Buffett\n20.8% CAGR at Berkshire\n55 Years\nGreedy when others are fearful\n\n\nBenjamin Graham\n20% CAGR vs 12% S&P 500\n1934 to 1956 (22 years)\nMargin of Safety\n\n\nEdward Thorp\n20+% CAGR\nover 30 years\ninvented card counting,pure statistically-based investing\n\n\nCharlie Munger\n19.80%\n1962 to 1975\nWonderful companies at fair prices\n\n\nHoward Marks\n19% CAGR\nSince 1995\nValuation Mean Reversion\n\n\nAnne Scheiber\n18.3% CAGR\n50 years\nTurned $5K into $22 million with no formal training, purely withtax-efficient buy and hold blue-chip investing.\n\n\nJohn Templeton\n300% from 1939 to 1943, 15.8% CAGR from 1954 to 1992\n38 years\nMarket Cycles\n\n\nCarl Icahn\n14.6% CAGR vs 5.6% S&P 500\n2001 to 2016 (15 Years)\n\n\nDavid Swenson\n13.9% CAGR at Yale's Endowment (includes bonds and alternative assets) vs 10.7% S&P 500\n30 years\nAlternative Asset Allocation\n\n\nGeraldine Weiss\n11.2% vs 9.8% S&P 500\n37 years\nBest risk-adjusted track recordof any newsletter over 30 years according to Hubbert Financial Digest, popularizeddividend yield theory(the only strategy she employed)\n\n\n\nCombining these lessons, along with decades of market studies from leading research institutions and blue-chip analyst firms, I've determined that there are six fundamentals that over the long term will make you rich (assuming you have discretionary savings to invest of course).\n\nPortfolio risk-management\nsafety\nquality\nyield\ngrowth\nand value\n\nWhen combined with patience, time, and discipline, these are what made the greatest investors in history the legends they are today.\nYou and I may never match the returns of the legends, but if we practice disciplined financial science we can avoid costly mistakes, and focus on the highest probability/low-risk blue-chips.\n\n It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.\" - Charlie Munger\n\nThese are the \"consistently not stupid\" decisions that made Charlie Munger and Warren Buffett so successful.\nToday I want to explain why I've recently opened a starter tracking position in speculative hyper-growth blue-chip Baidu (BIDU).\n\nAll Chinese tech giants are suffering a bear market right now. But notice how Baidu recently fell 40% in a matter of weeks.\n\n Baidu was also held by now-infamous hedge fund Archegos Capital Management at that time, which blew up during the same week. When the highly levered Archegos was unable to meet a margin call, banks seized Archegos' assets, including Baidu, and sold them off in massive blocks, accelerating Baidu's plunge.\" -Motley Fool\n\nInstitutional forced selling is one of the best opportunities for prudent long-term investors to buy the world's highest quality companies at mouth-watering prices.\n\nLowe's (LOW) and Realty Income (O) both plunged 25% on March 16th, due to institutional forced selling.\nIn other words, when hedge funds get margin calls, they become the ultimate dumb money. Taking the other side of those trades can be the way to earn Buffett-like returns, through buying and holding blue-chip investing.\nSo let me explain the four reasons why I consider it time to get greedy when others are fearful on Baidu.\n\n Today I buy what others won't, so tomorrow I earn returns others can't.\"\n\n\n - Paraphrase of Jerry Rice\n\nReason 1: A Speculative Blue-Chip Quality Company\nAccording to the 2017 studyDo Stocks Outperform Treasury Bills?by Hendrik Bessembinder of Arizona State University's W.P. Carey School of Business 52% of all stocks, lose money over time.\nThis study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.\n\n(Source: Bessembinder et al)\nFrom 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.\nIn other words, safety and quality are what can help you avoid the value traps that don't make any money or lose all of your savings.\nThe Dividend Kings quality scores factor in 143 fundamental metrics covering\n\ndividend safety\nbalance sheet strength\nshort and long-term bankruptcy risk\naccounting and corporate fraud risk\nprofitability and business model\ncost of capital\nlong-term sustainability (ESG scores and trends from MSCI, Morningstar, and Reuters'/Refinitiv)\nmanagement quality\ndividend friendly corporate culture/income dependability\nlong-term total returns (a Ben Graham sign of quality)\n\nOur model actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.\nEvery metric was selected based on\n\ndecades of empirical data\nthe experience of the greatest investors in history\neight rating agencies\nand what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.\n\nBaidu's quality is 9/12 speculative blue-chip, meaning I recommend a 2.5% max risk cap position sizing.\nDividend Kings Quality Rating System\n\n\n\n\nQuality Score\nMeaning\nMax Invested Capital Risk Recommendation\nMargin Of Safety Potentially Good Buy\nStrong Buy\nVery Strong Buy\nUltra-Value Buy\n\n\n3\nTerrible, Very High Long-Term Bankruptcy Risk\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n4\nVery Poor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n5\nPoor\n0%\nNA (avoid)\nNA (avoid)\nNA (avoid)\nNA (avoid)\n\n\n6\nBelow-Average, Fallen Angels (very speculative)\n1%\n45%\n55%\n65%\n75%\n\n\n7\nAverage (Relative to S&P 500)\n2.5%\n35%\n45%\n55%\n65%\n\n\n8\nAbove-Average\n5% (unless speculative then 2.5%)\n25% to 30%\n35% to 40%\n45% to 50%\n55% to 60%\n\n\n9\nBlue-Chip\n7% (unlessspeculativethen2.5%)\n20% to25%\n30% to35%\n40% to45%\n50% to55%\n\n\n10\nSWAN (a higher caliber of Blue-Chip)\n7% (unless speculative then 2.5%)\n15% to 20%\n25% to 30%\n35% to 40%\n45% to 50%\n\n\n11\nSuper SWAN (exceptionally dependable blue-chips)\n7% (unless speculative then 2.5%)\n10% to 15%\n20% to 25%\n30% to 35%\n40% to 45%\n\n\n12\nUltra SWAN (as close to perfect companies as exist)\n7% (unless speculative then 2.5%)\n5% to 10%\n15% to 20%\n25% to 30%\n35% to 40%\n\n\n\nWhat exactly makes Baidu a speculative blue-chip?\nBalance Sheet Safety\n\n\n\n\nRating\nDividend Kings Safety Score (75 Safety Metric Model)\nApproximate Dividend Cut Risk (Average Recession)\nApproximate Dividend Cut Risk In Pandemic Level Recession\n\n\n1 (very unsafe)\n0% to 20%\nover 4%\n16+%\n\n\n2 (unsafe average)\n21% to 40%\nover 2%\n8% to 16%\n\n\n3 (average)\n41% to 60%\n2%\n4% to 8%\n\n\n4 (safe)\n61% to 80%\n1%\n2% to 4%\n\n\n5 (very safe)\n81% to 100%\n0.5%\n1% to 2%\n\n\nBIDU\n76%\nA stable rating from Fitch, A3 (A- equivalent) stable rating Moody's\n0.66% to 2.5% 30-year default/bankruptcy risk\n\n\n\nLong-Term Dependability\n\n\n\n\nCompany\nDK Long-Term Dependability Score\nInterpretation\nPoints\n\n\nS&P 500/Industry Average\n58%\nAverage Dependability\n2\n\n\nNon-Dependable Companies\n31% or below\nPoor Dependability\n1\n\n\nRelatively Dependable Companies\n32% to 70%\nBelow to Above-Average Dependability\n2\n\n\nVery Dependable Companies\n71% to 80%\nVery Dependable\n3\n\n\nExceptionally Dependable Companies\n81% or higher\nExceptional Dependability\n4\n\n\nBIDU\n67%\nAbove-Average Dependability\n2\n\n\n\nOverall Quality\n\n\n\n\nBIDU\nFinal Score\nRating\n\n\nSafety\n76%\n4/5\n\n\nBusiness Model\n80%\n3/3\n\n\nDependability\n67%\n2/4\n\n\nTotal\n73%\n9/12 Speculative Blue-Chip\n\n\n\nBaidu is the 245th Highest Quality Master List Company (Out of 495) = 49th Percentile\n(Source: DK Safety & Quality Tool) updated at the end of each day, sorted by overall quality score\n\ngreen = potentially good buy or better\nblue = potentially reasonable buy\nyellow = hold\nred = potential trim/sell\n\nBIDU's 73% quality score means it's the 245th highest quality company on the DK 500 Master List. This list includes the world's highest quality companies including\n\nall dividend champions\nall dividend aristocrats\nall dividend kings\nall 12/12 Ultra SWANs (as close to perfect quality as exists on Wall Street, think wide moat aristocrats)\nnumerous global aristocrats (such as BTI, ENB, and NVS)\n\nBIDU is about average quality compared to the world's elite companies and similar in quality to such 9/12 blue-chips and, 10/12 SWANs, as\n\nQualcomm (QCOM)\nBecton, Dickinson and Company (BDX) - dividend aristocrat\nW. P. Carey (WPC)\nSonoco Products (SON) - dividend champion\nH.B. Fuller (FUL) - dividend king\nMetLife (MET)\nDigital Realty Trust (DLR)\nLeggett & Platt (LEG) - dividend aristocrat\nV.F. Corp (VFC) - dividend aristocrat\nBank of New York Mellon (BK)\n\nBaidu has a strong cash-rich balance sheet, though it is taking on extra leverage in order to fund its ambitious growth efforts.\n(Source: Gurufocus Premium)\nIncluding leasing expenses, BIDU has 2X as much cash as debt.\nFitch and Moody's rate Baidu A stable and A3 (A- equivalent) stable outlooks, indicating 0.66% to 2.5% 30-year default/bankruptcy risk.\nAnalysts expect much higher spending in the short-term to cause leverage to increase, though rating agencies don't expect this to be permanent.\nThe key safety ratios with Baidu are the F, Z, and M scores, advanced accounting ratios created by leading research institutions that use asset ratios scanned from quarterly filings.\n\nF-score measures short-term bankruptcy risk\nZ-score measures 2-year bankruptcy risk (with 84% to 92% historical accuracy)\nM-score measures accounting fraud risk (with 76% historical accuracy)\n\n7/9 is very safe on the F-score = very low short-term bankruptcy risk.\n3.59 vs 3+ very safe and 9.51 historical, confirms the A-credit ratings and low long-term risk of losing all your money.\nAnd the M-score of -2.42 indicates a significantly less than 17.5% probability that Baidu is cooking its books.\n\n(Source: Gurufocus)\nBIDU's historically unsafe M-score has been improving and became safe at the end of 2014 and has remained so for the last seven years.\n\nits safety and quality score still get dinged though because we factor in every important metric so we don't miss any warning signs\n\nThe M-score is 76% historically accurate at catching accounting fraud and 82.5% accurate at finding companies with honest accounting.\nCombined with its credit ratings and risk ratings from 5 different rating agencies, plus its auditors, I can say with relatively high confidence that Baidu is not the next Luckin Coffee.\nQuality is a proven alpha factor, one of seven that beats the market over the long term.\n\nOn Wall Street, profitability over time is the most accurate proxy for quality.\n\ncredit ratings are one of the best qualitative quality proxies\n\n(Source: Gurufocus Premium)\nBaidu's profitability is historically in the top 20% of its peers, confirming a wide and stable moat.\n\n\n\n\nMetric\nIndustry Percentile\nMajor Interactive Media Companies More Profitable Than BIDU (Out of 543)\n\n\nOperating Margin\n67.35\n177\n\n\nNet Margin\n81.26\n102\n\n\nReturn On Equity\n67.86\n175\n\n\nReturn On Assets\n68.47\n171\n\n\nReturn On Capital\n69.61\n165\n\n\nAverage\n70.91\n158\n\n\n\n(Source: Gurufocus Premium)\nOver the last year, increased growth spending has reduced profitability to the top 29% of peers, though that's expected to recover in the future.\n\nfor example, returns on equity are expected to rise 10% by 2024\n\nJoel Greenblatt defined quality by return on capital, his gold standard proxy for quality and moatiness.\n\noperating income (EBIT)/operating capital (the money it takes to run the business for a year)\n\nGreenblatt's entire legendary track record, 40% annual returns for 21 years, was done by combining high ROC with low valuations.\n(Source: Gurufocus Premium)\nEven with heavy growth spending in recent years, Baidu's returns on capital are very impressive.\nThe average Master List company has 88% ROC.\nThe average aristocrat 83%.\nThe average Ultra SWAN 87%.\nOver the past year, BIDU's ROC has been 103% and in Q4 it was 95%.\nAnalysts expect that in the next few years, ROC will revert back to its historical 205%.\nA level of profitability that, according to Joel Greenblatt, would make BIDU one of the highest quality companies in the world.\nBaidu's future growth is expected to come from aggressive investments into driverless cars (long-term) and AI and streaming in the short and medium term.\nBaidu Growth Spending Consensus Forecast\n\n\n\n\nYear\nSG&A\nR&D\nCapex\nTotal Growth Spending\nSales\nGrowth Spending/Sales\n\n\n2020\n$2,792\n$3,016\n$993\n$4,009\n$16,548\n24.23%\n\n\n2021\n$3,574\n$3,554\n$1,893\n$5,447\n$19,517\n27.91%\n\n\n2022\n$3,974\n$4,062\n$2,220\n$6,282\n$22,235\n28.25%\n\n\n2023\n$5,049\n$5,858\n$2,719\n$8,577\n$25,258\n33.96%\n\n\n2024\nNA\nNA\n$1,504\nNA\n$30,071\nNA\n\n\n2025\nNA\nNA\nNA\nNA\nNA\nNA\n\n\n2026\nNA\nNA\nNA\nNA\nNA\nNA\n\n\nAnnualized Growth\n21.83%\n24.77%\n10.94%\n28.85%\n16.10%\nNA\n\n\n\n(Source: FactSet Research Terminal)\nHistorically Baidu spends about 17% of its revenue on growth. By 2023 that's expected to double.\nTotal growth spending is expected to grow at almost 30% annually for the next three years.\nBaidu Consensus Profit Forecast\n\n\n\n\nYear\nSales\nFCF\nEBITDA\nEBIT (Operating Income)\nNet Income\n\n\n2020\n$16,548\n$2,106\n$4,251\n$2,216\n$3,473\n\n\n2021\n$19,517\n$3,947\n$4,734\n$2,629\n$2,760\n\n\n2022\n$22,235\n$5,013\n$5,812\n$3,400\n$3,381\n\n\n2023\n$25,258\n$5,854\n$6,730\n$4,163\n$4,226\n\n\n2024\n$30,071\n$7,421\nNA\n$6,195\n$5,268\n\n\nAnnualized Growth\n16.10%\n37.01%\n16.55%\n29.31%\n10.98%\n\n\n\n(Source: FactSet Research Terminal)\nManagement's guidance, which is the basis for these consensus forecasts, is for strong revenue growth. Net margins are expected to compress but cash flows are expected to soar.\nFree cash flow, the ultimate source of all intrinsic value according to Ben Graham and Warren Buffett, is expected to more than triple by 2024.\nBaidu Consensus Margin Forecast\n\n\n\n\nYear\nFCF Margin\nEBITDA Margin\nEBIT (Operating) Margin\nNet Margin\n\n\n2020\n12.7%\n25.7%\n13.4%\n21.0%\n\n\n2021\n20.2%\n24.3%\n13.5%\n14.1%\n\n\n2022\n22.5%\n26.1%\n15.3%\n15.2%\n\n\n2023\n23.2%\n26.6%\n16.5%\n16.7%\n\n\n2024\n24.7%\nNA\n20.6%\n17.5%\n\n\nAnnualized Growth\n18.01%\n1.23%\n11.37%\n-4.42%\n\n\n\n(Source: FactSet Research Terminal)\nBaidu's profitability is ultimately expected to improve, though net margins won't until its major growth initiatives are over.\n(Source: FactSet Research Terminal)\nBIDU ended 2020 with $5.6 billion in cash, and that's expected to rise to $22 billion by 2023, and potentially nearly $60 billion by 2024.\nThat may not be as impressive as some tech companies ($601 billion by 2026 for Amazon), but it does mean that Baidu's war chest and financial flexibility to pivot towards AI, driverless cars, and streaming will grow significantly in future years.\nBaidu Medium-Term Growth Consensus\n\n\n\n\nMetric\n2020 Actual Growth\n2021 consensus growth\n2022 consensus growth\n2023 consensus growth\n\n\nEPS\n31%\n7%\n18%\n16%\n\n\nOwner Earnings (Buffett smoothed out FCF)\n124%\n22%\nNA\nNA\n\n\nOperating Cash Flow\n-14%\n59%\n31%\n7%\n\n\nFree cash flow\n96%\n85%\n22%\nNA\n\n\nEBITDA\n-18%\n53%\n27%\n24%\n\n\nEBIT (operating income)\n130%\n26%\n26%\n19%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nIn the next few years, Baidu's growth efforts are expected to result in strong growth. But what's attracted me to the Google of China, is that this hyper-growth is expected to continue for many years to come.\nReason 2: Long-Term Hyper-Growth Potential\n(Source: FactSet Research Terminal)\nBIDU's AI, streaming, and driverless car investments are showing up in \"other services\" and that revenue is expected to grow almost 50% in 3 years.\n\n(Source: F.A.S.T. Graphs, FactSet Research)\n\n16.0% to 17.5% long-term growth consensus range\n6% to 28% growth consensus range adjusted for historical margin of error\n\n\nThe margins of error on BIDU forecasts are very wide. 33% of the time it grows much faster than expected, 33% of the time much slower, and 33% of the about as fast as expected.\n\nmargins of error over the last decade (excluding outliers) are 60% to the downside, 55% to the upside\nthe long-term growth consensus range: 16% to 18% CAGR\nthe margin of error adjusted long-term analyst growth consensus range: 6% to 28% CAGR\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU's historical growth is from -9% to 52%. So relatively high growth uncertainty, more so than most tech blue-chips.\n\nand thus the $650 investment vs $10K in GOOG, $89K in BABA, and $200K in Amazon\n\nHowever, analysts expect growth to be similar to the 20% growth of the last decade.\nAnd at today's high margin of safety, we're likely getting a good deal to compensate for BIDU's growth uncertainty and complex risk profile.\nReason 3: Highly Attractive Valuation\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU growing at the rates analysts expect in the future has historically been valued at 23X to 26X earnings.\n(Source: FactSet Research Terminal)\nBIDU is currently trading at 20.4X forward earnings and 13.6X EV/EBITDA.\nEV/EBITDA is market cap + net debt/EBITDA and is Joel Greenblatt's and private equity's favorite valuation metric.\nBaidu's 13-year median EV/EBITDA is 23.2, and its trading at 13.6, implying a potential 42% discount to fair value.\n\n\n\n\nMetric\nHistorical Fair Value (12-years)\n2020\n2021\n2022\n2023\n\n\nEarnings\n25.0\n$243.87\n$261.27\n$307.91\n$357.77\n\n\nOwner Earnings (Buffett smoothed out FCF) - 10 yr\n23.5\n$324.46\n$394.46\nNA\nNA\n\n\nOperating Cash Flow\n19.9\n$202.33\n$321.22\n$420.37\n$448.64\n\n\nFree Cash Flow (11-yr)\n27.5\n$220.77\n$408.53\n$497.28\nNA\n\n\nEBITDA\n22.0\n$190.60\n$291.18\n$370.80\n$459.36\n\n\nEBIT (operating income)\n34.5\n$207.78\n$261.14\n$328.78\n$392.83\n\n\nAverage\n$224.60\n$312.71\n$373.81\n$410.40\n\n\nCurrent Price\n$215.83\n\n\nDiscount To Fair Value\n3.91%\n30.98%\n42.26%\n47.41%\n\n\nUpside To Fair Value\n4%\n45%\n73%\n90%\n\n\n\n(Source: F.A.S.T. Graphs, FactSet Research)\nBIDU is about 31% historically undervalued right now, meaning that if it grows as expected through 2023 and returns to fair value that's 90% upside potential.\n\n$350 is the median 12-month price target\n65% upside potential over the next 12 months according to analysts\n\nAnd that guestimate is 100% justified by fundamentals.\n\n\n\n\nRating\nMargin Of Safety For Speculative 9/12 Blue-Chip Quality Companies\n2020 Price\n2021 Price\n2022 Price\n\n\nPotentially Reasonable Buy\n0%\n$224.60\n$312.71\n$373.81\n\n\nPotentially Good Buy\n25%\n$168.45\n$234.53\n$280.35\n\n\nPotentially Strong Buy\n35%\n$145.99\n$203.26\n$242.97\n\n\nPotentially Very Strong Buy\n45%\n$123.53\n$171.99\n$205.59\n\n\nPotentially Ultra-Value Buy\n55%\n$101.07\n$140.72\n$168.21\n\n\nCurrently\n$213.41\n5%\n32%\n43%\n\n\nUpside To Fair Value (Not Including Dividends)\n5%\n47%\n75%\n\n\n\nAt a 32% margin of safety, Baidu, despite all its risks, is a potentially good buy for more risk-tolerant investors.\nBut the ability to potentially enjoy monster short-term gains is just the cherry on top with Baidu.\nReason 4: Eye-Popping Long-Term Return Potential\nHere is a reasonable idea of what kind of returns you can expect buying BIDU today.\nBaidu 2023 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BAIDU grows as analysts expect through 2023, and returns to historical fair value, then analysts expect\n\n75% total returns\n23.3% CAGR returns\nvs -1.3% CAGR S&P 500\n\nFrom its 31% discount, BIDU has the potential to outperform the 36% overvalued S&P 500 by 78% over the next three years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nCorporate earnings growth estimates are rising by the day. Yet the market has already priced in three years of earnings growth totaling 62% or 17.4% CAGR.\nOver the long term, BIDU's return outlook is also very strong.\nBaidu 2026 Consensus Return Potential\n(Source: F.A.S.T. Graphs, FactSet Research)\nIf BIDU grows as analysts expect through 2026 and returns to historical fair value you could expect\n\n179% total returns\n19.8% CAGR\nvs 4.5% CAGR S&P 500\n4.4X better than the market's consensus return potential\n\nIf BIDU delivers as analysts expect, then buying today could almost triple your money in the next five years.\n(Source: F.A.S.T. Graphs, FactSet Research)\nOver the long term, analysts expect\n\n0% yield + 17.5% growth = 17.5% CAGR very long-term total returns (after valuation changes cancel out)\n6% to 28% CAGR range\nvs 7.8% for the S&P and 10.8% for the dividend aristocrats\n\nBaidu Total Returns Since 2006\n\n(Source: Portfolio Visualizer)\nIn the last 15 years, BIDU has turned $1 into $26, adjusted for inflation, and crushed the market with 8X more wealth compounding.\nIt's expected to grow slightly slower than in the past, but the ability to potentially enjoy 17.5% hyper-growth for many years is incredibly attractive.\nBaidu Vs S&P 500 Vs Dividend Aristocrat Inflation-Adjusted Total Return Forecast: $650 Initial Investment\n\n\n\n\nTime Frame (Years)\n5.8% LT Inflation-Adjusted Returns (S&P Consensus)\n8.8% Inflation-Adjusted Returns (aristocrat consensus)\n15.5% Inflation-Adjusted Returns (BIDU consensus)\n\n\n5\n$1,325.65\n$1,524.56\n$1,336.05\n\n\n10\n$1,757.34\n$2,324.28\n$2,746.21\n\n\n15\n$2,329.62\n$3,543.51\n$5,644.73\n\n\n20\n$3,088.26\n$5,402.29\n$11,602.54\n\n\n25\n$4,093.94\n$8,236.11\n$23,848.60\n\n\n30\n$5,427.13\n$12,556.45\n$49,019.95\n\n\n35\n$7,194.46\n$19,143.06\n$100,758.76\n\n\n40\n$9,537.33\n$29,184.74\n$207,106.02\n\n\n45\n$12,643.14\n$44,493.88\n$425,699.02\n\n\n50\n$16,760.36\n$67,833.58\n$875,009.10\n\n\n\nThe ability to grow 2X to 3X as fast as the S&P 500 or aristocrats creates the potential for wealth compounding on a massive scale. Look at how large my $650 initial BIDU investment can grow, assuming analysts are right and management delivers the expected growth over time.\n\n\n\n\nTime Frame (Years)\nRatio S&P vs Aristocrat Consensus\nRatio S&P vs BIDU consensus\n\n\n5\n1.15\n1.01\n\n\n10\n1.32\n1.56\n\n\n15\n1.52\n2.42\n\n\n20\n1.75\n3.76\n\n\n25\n2.01\n5.83\n\n\n30\n2.31\n9.03\n\n\n35\n2.66\n14.01\n\n\n40\n3.06\n21.72\n\n\n45\n3.52\n33.67\n\n\n50\n4.05\n52.21\n\n\n\nOver the long term, the aristocrats are expected to quadruple the S&P 500's wealth compounding. Baidu could potentially deliver 52X as much wealth as the S&P 500.\nIs Baidu likely to grow 17.5% for 50 years? Probably not. But even if it can deliver just 10 to 20 years of hyper-growth, when combined with its attractive current valuation, that's worthy of a small initial investment in my book.\nRisk Profile: Why Baidu Isn't Right For Everyone\nThere are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.\nFundamental Risk Summary\n\n We think Baidu faces high levels of risk, given intense competition along with questions as to whether its AI-related investment will generate satisfactory returns.\n\n\n Though Baidu is the largest search engine in China, it is competing with the other two Internet giants, Tencent and Alibaba, and Google’s potential return to the Chinese search market is also a threat.\n\n\n Regarding the search engine business, Tencent invested in Sogou, and Alibaba acquired UC Web, which owns a mobile search engine, Shenma. Competition has extended to each key area of mobile Internet usage, such as navigation, O2O services, online video services, and so on. Baidu’s margins have been significantly dragged down by aggressive spending in video content and O2O marketing but recovered to 18.5% in 2017 from 14.2% in 2016 as Baidu divested margin-dilutive businesses.\n\n\n The major Internet companies in China have been investing in AI-related business, such as cloud computing, voice and image recognition, and autonomously driven cars. At the current stage,\n it is difficult to predict whether Baidu will be the final winner in AI and whether the returns will reward its investment.\n\n\n In addition, regulatory risk is a concern. Following the Wei Zexi incident in early 2016, Chinese authorities launched new regulations for online search and advertising, which clearly defined paid search results as advertising. These regulations took effect on Sept. 1, 2016. Given stricter standards for online advertisers, Baidu’s online marketing services revenue growth declined to 1% in 2016. If the local authorities release more policies regarding Internet business, such as online advertising and online finance, Baidu’s revenue could be negatively affected.\n\n\n Since 2017, Baidu has discontinued the disclosure of MAUs for its mobile search and mobile maps, which is possibly due to weaker numbers.\" - Morningstar\n\nBIDU's pivot into the technology of the future is potentially like Satya Nadella taking MSFT into the pure cloud-driven strategy.\nOr it could be like IBM's Watson-based flaying, major promise but poor execution over time.\n\n Baidu has the urgency to strengthen its mobile business because it has not developed another industry-leading business other than its mobile search app for years.\n\n\n Baidu’s share of mobile time spend reduced to 6.9% in March 2019 from 7.3% year over year. Baidu positions its flagship Baidu app (173 million daily average users in March 2019) as a \"super\" app that can serve a wide range of users' needs, such as reading, watching videos, shopping, transportation tickets, food services, and so on, but we believe the app is less of a super app compared with Tencent’s Wechat (1.1 billion monthly average users).\n\n\n It has copied the strategies of its peers by launching a mini-program (181 million MAU in March 2019) and short video apps (sevenfold year over year increase to 98 million MAU in March 2019 as per Questmobile).\" - Morningstar\n\nBaidu has struggled more than most Chinese tech giants to pivot and adapt to the disruption risk that is ever-present in this industry.\n\n We have not factored in the meaningful commercialization of Baidu’s AI-based services, such as voice assistant platform DuerOS, autonomous driving platform Apollo and artificial intelligence cloud services.\n\n\nSearch is driven by an artificial intelligence-powered algorithm, giving Baidu a good foundation in this segment.Baidu is also\n one of the largest and earliest companies to start AI investments in China.Currently, Baidu uses AI to recommend feeds to the app’s users to generate advertising revenue.\n\n\n IQiyi, Baidu’s online video platform, has been a key growth driver stemming from increasing willingness to pay for premium content in China and continuous advertising demand on \n iQiyi. It accounted for 29% of Baidu’s revenue in the first quarter of 2019.\n\n\n In the near term, Baidu will invest heavily in its mobile business in terms of sales and marketing, and traffic acquisition. While meaningful monetization is uncertain, we expect Baidu to increase or maintain its research and development expenditure, which is at 17% of sales in the first quarter of 2019. To fend off major competitor Tencent Video, iQiyi needs to continue to invest in premium content. Therefore, we expect Baidu’s margins to be under pressure in the near term.\" - Morningstar\n\nBut while Baidu has made some questionable investments over the years, its current focus on AI is a logical and prudent one.\nBaidu's competitive advantage in AI stems from being the first mover in Chinese search. It has the most data to feed into its machine learning algorithms, though rivals like Alibaba (BABA) and Tencent (OTCPK:TCEHY) are working hard to eat its lunch.\n\n Baidu generated 68% of its revenue during the year from its online marketing services segment, which mainly sells ads. The segment's revenue has declined year over year for seven straight quarters.\n\n\n That ongoing slowdown is troubling since Baidu's advertising rivals -- like \n Tencent and \n Bilibili --both expanded their advertising businesses over the past year. It also indicates people are spending less time on traditional online searches and more time on other digital platforms.\" - Leo Sun,Motley Fool\n\nIn recent years, BIDU's market share in digital ads has been declining, which means unlike companies like JD, BABA, and TCEHY, it's attempting to pivot from a position of weakness, not strength.\nIt has the resources to invest heavily and hopefully achieve the kinds of impressive growth rates analysts expect. But success is far from guaranteed.\nThis is why I've bought a starter 3 share tracking position in Baidu.\n\ncompared to a $10,000 position in Alphabet (GOOG)\nand an $89,000 investment into Alibaba\nand a $200,000 investment into Amazon(AMZN)\n\nAnd of course, we can't forget about the risks surrounding management and governance.\n\n Robin Yanhong Li, the founder of Baidu, has been the chairman of the board since its inception and has served as the CEO since 2004. Before that, Li worked at IDD Information Services and Infoseek in Silicon Valley, with a special focus on product development in Internet search engines. Li owned 16.4% of the company as of January 2020, and all directors and management together owned 16.5%. Jennifer Xinzhe Li stepped down as CFO in 2017 and was replaced by Herman Yu, formerly of Weibo...\n\n\n Baidu had reputational issues, with the Wei Zexi medical incident being the largest scandal, which led to a management restructuring in 2016. Three vice presidents were dismissed. Qi Lu joined Baidu in January 2017 as group president and COO but resigned in June 2018. Lu has a solid record in the U.S. technology industry, and Baidu’s financial performance substantially improved during his appointment.\n\n\n This incident once again raised the market’s concern about Baidu’s turnover of key executives, including ex-chief scientist Andrew Ng and ex-senior vice president Jin Wang. In May 2019, Baidu announced the departure of senior vice president Hailong Xiang, who had been with Baidu since 2005. His departure is believed to be a result of Baidu’s inability to develop another successful and profitable business outside of search.\n\n\n The introduction of a senior management retirement plan and a young leadership development program signifies Baidu’s determination to revamp its management and reinvigorate its businesses in the new Internet era. Shen Dou leads the mobile ecosystem group now. He has a technical background and puts more focus on more user experience versus maximizing sales. There are now more interactions between the sales, commercial product team, and the user experience team, which we think is better for Baidu’s sustainability.\" - Morningstar\n\nUnlike the management at Tencent, which Morningstar considers \"exemplary\" or the \"deep bench\" at Alibaba, BIDU has struggled with management in recent years.\n\n B shares, which are owned by the CEO and his affiliates, have 10 times the voting rights of Class A shares. Therefore,\n Li controls 55.4% of the equity voting rights as of January 2020.As a result, these Class B shareholders have a disproportionately large influence over key matters such as the election of directors and significant corporate transactions, including mergers and the sale of the company or assets.\" - Morningstar\n\nBIDU's founder and CEO controls 55% of the vote and thus is effectively king of Baidu. If shareholders don't like what management does, they have no recourse other than selling.\nManagement isn't a poor capital allocator, but in recent years it hasn't been firing on all cylinders when it comes to pivoting to growth catalysts as easily as JD, BABA, and TCEHY have.\n\n Some of Baidu’s acquisitions and new business developments have proved unsuccessful.\n\n\n These include the acquisition of 59% of Nuomi, a group-buying service provider, for $160 million in 2013 and the remaining stake in 2014 for an undisclosed sum, and Raven Tech for $90 million in 2017...\n\n\n Baidu’s investments in online-to-offline businesses such as deliveries and Nuomi led to its \n operating margin declining from 26.1% in 2014 to 14.2% in 2016 but they did not gain as much scale as Meituan.\n\n\n However, we refrain from giving a Poor stewardship rating to Baidu for several reasons.\n\n\nBaidu made the right decision in moving away from the O2O businesses, which led to margin improvement to 18.5% in 2017and investing in mobile and AI, which we believe is sensible given that they complement its strong core search business.\n\n\n Also, Baidu’s return on invested capital has been way higher than its weighted average cost of capital of 9.8% over the past 10 years.\" - Morningstar\n\nAnd of course, every investor in Chinese tech has to understand VIE regulatory risk.\n\n Like many other Chinese Internet companies listed in overseas markets, Baidu operates under a \n variable interest entity structure designed to let companies bypass Chinese legal restrictions on foreign ownership in certain sectors.\n\n\n Baidu's foreign investors essentially hold shares of Baidu's VIE domiciled in the Cayman Islands.\n We don't expect any legal challenges to VIE structures by the Chinese government and believe that Baidu will consider a China depositary receipt listing in the future.\n\n\n However, if the legitimacy of Baidu's related VIE is found to violate applicable law or regulation, Chinese regulatory authorities might take action, including revoking the business and operating licenses of Baidu's subsidiaries or the VIE, or discontinuing, restricting, or restructuring Baidu's operations.\n\n\n Since the Chinese Ministry of Commerce has the jurisdiction to regulate VIEs,\n we believe overseas investors would have limited legal rights.\" - Morningstar\n\nVIE regulatory risk is the reason that all Chinese tech stocks are speculative, and always will be, regardless of quality (Tencent is a 12/12 speculative Ultra SWAN for this reason).\nHow do you measure and factor in such a complex risk profile?\nBy turning to the expert consensus.\n\n39 analysts that cover BIDU and collectively know it better than anyone other than management\nand whether or not scary headlines meaningfully alter the investment thesis\n2 credit rating agencies\n3 ESG risk rating agencies\n44 total experts that monitor BIDU's risk profile for DK and will let us know if the thesis is weakening, strengthening or breaks\n\nESG Material Financial Risk Analysis\nEssential To Fully Understanding A Company's Overall Risk Profile Especially Chinese Tech Companies\nAccording to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.\n\nBlackRock - #1 asset manager in the world\nMSCI - #1 indexing giant\nMorningstar\nReuters'/Refinitiv\nISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth\nS&P\nFitch\nMoody's\nDBRS (Canadian credit rating agency)\nAM Best (insurance industry rating agency)\nBank of America - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nBloomberg\nFactSet Research\nState Street - one of the largest custodial banks on earth\nWells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch\nNAREIT\n\n\n Companies with strong ESG profiles may be better positioned for future challenges and experience\n fewer instances of bribery, corruption, and fraud.\" - MSCI (Emphasis added)\n\nBank of America's research finds that ESG metrics also help improve the long-term profitability and outcomes at companies.\n\nPunchline: higher ROE, lower risk & lower cost of capital\n\n\n We find that companies with greater gender diversity at the board/management level typically see \n higher ROE and lower earnings risk than peers.\n\n\n Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a \n ~20% premium on P/E on an overall and sector-neutral basis.\n\n\n Ethnic and racial workforce diversity shows similarly strong results:\n higher ROE, lower risk, and significant premia on P/E and P/BV.\" - Bank of America (emphasis original)\n\nESG isn't about political correctness, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the short to medium-term.\nBaidu Consensus ESG Risk Rating\n\n\n\n\nRating Agency\nIndustry Percentile\nRating Agency Classification\n\n\nMSCI\n54.0%\nBB Below-Average\n\n\nMorningstar/Sustainalytics\n40.2%\n24.4/100 Medium Risk\n\n\nReuters'/Refinitiv (Combined ESG Rating)\n52.6%\nSatisfactory\n\n\nS&P\nNA\nNA\n\n\nConsensus\n48.9%\nAverage\n\n\n\n(Sources: MSCI, Morningstar, Reuters'/Refinitiv)\nAccording to Morningstar, MSCI, and Reuter's BIDU's overall handling of its long-term financial ESG risk is average, in the 49th percentile.\n\nwhich is actually the highest ESG score of any of the big China tech stocks\nESG investors probably want to avoid Chinese companies\n\n\n(Source: MSCI)\nChinese companies tend to score poorly on ESG due to governance issues.\nBut note that BIDU used to be rated CCC very poor and has seen two rating upgrades in two years.\n(Source: BIDU IR)\nIn recent years BIDU did establish an ESG committee that may explain the improvement in ESG risk scores.\n(Source: BIDU IR)\n\n To enhance the integrity of mobile information and continue to be a leader in AI, we devote time and attention to the needs and demands of stakeholders, including suppliers, partners, governments, social institutions, users, employees, communities, and the environment itself.\n\n\n We actively explore low carbon operations, sustainable economic indicators, supply chain management, intellectual property, technological innovation, compliance, data privacy, information security, user experience, personnel training, employee rights, and community engagement.\n\n\n We aim to fully integrate an ESG philosophy and standards into our management, solve social problems with technology, leverage our corporate strength and innovation capability, and contribute long-term, sustainable value to stakeholders and the human community at large.\" - BIDU ESG mission statement\n\nBIDU is talking the talk, and apparently beginning to walk the walk as well when it comes to managing long-term risk.\n\nMorningstar rates BIDU below average compared to its peers, but on par with the likes of Spotify, Snap, and MercadoLibre. In fact, Morningstar considers BIDU's ESG risk to be in the top 36% of all companies it rates.\n(Source: Reuters'/Refinitiv)\nReuters/Refinitv is the most robust ESG model we have access to. Over 450 metrics in total make up that score.\n\nBIDU scores rather poorly on governance and environmental issues\n\nThe bottom line is that all companies have complex risk profiles that need to be considered before investing.\nThe DK Safety and quality model don't ignore any risk, and BIDU's risks are firmly baked into its speculative blue-chip rating.\nA 32% margin of safety compensates us appropriately for all of the company's risks, and what could go wrong in the future.\nHowever, more risk-intolerant investors will want to avoid BIDU and Chinese companies in general.\nBottom Line: It's Time To Be Greedy When Others Are Fearful About Baidu\nIn this highly overvalued market, it's easy to throw up your hands and shout \"everything is expensive and it's dangerous to buy any stock.\"\nWhile there are many speculative bubbles that could destroy your retirement dreams, there are ALWAYS great blue-chip bargains available.\nBaidu is one of those potentially exceptional long-term opportunities right now. Its 40% bear market, partially created by forced institutional margin call selling, allows anyone comfortable with its risk profile to buy the Google of China at a 32% margin of safety.\nIs Baidu speculative? Sure, all Chinese tech stocks are. Is it worth risking a small amount of discretionary savings to see whether Baidu can deliver on its AI/Driverless car/Streaming plans?\nI think so. If Baidu lives up to expectations, then it could potentially double within three years and almost triple within five.\nBarring the most extreme stock market bubble in history, one that surpasses the tech mania of the late '90s, there is no chance the S&P 500 and Nasdaq will even come close.\nAnd to achieve such returns Baidu doesn't have to fly off into a speculative bubble. It merely has to return to fair value and grow at the impressive rates analysts expect and it has delivered in the past.\nI can't tell you what Baidu's price will do over the next year. I can tell you that the 65% upside analysts expect over the next 12 months is 100% fundamentally justified.\nFor those comfortable with the complex risk profile inherent to Chinese tech stocks, a small position in Baidu at some of the best valuations in years is a reasonable and prudent decision.\nBasically, it's time to be greedy when others are fearful about the Google of China.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":106,"commentSize":58,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}