New Trade: Long Baidu ($BIDU) & Short AOL ($AOL)

By: ispeculatornew
Date posted: 08.06.2012 (5:00 am) | Write a Comment  (2 Comments)

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You must think that I’m crazy. After what turned out to be a very solid week for long short & short tech stock picks, I’m back at it, shorting a stock that I wrote about as a model just days ago. The fact is though that this seems like a very solid trade on paper.

Let’s get right to it and look at the numbers:

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Long Baidu ($BIDU)

Ah Baidu, the Chinese search engine which continues to impress, did very well in its latest earnings report and certainly has the potential to go much higher. I personally feel like its valuation remains very attractive even though there is a lot of uncertainty. Wanna be rivals such as Google and Facebook continue to be unable to compete in China which has helped things. I don’t foresee any changes on that front in the near future.

Short AOL ($AOL)

As you probably already know, AOL has done incredibly well this year. I did try to look into what was causing this but apart from the fact that it sold a large portion of its patents, I don’t see much to explain the success. Since AOL won’t be able to sell patents like this going forward, I do expect the upside for AOL to be fairly limited at this point. It is trading at a very high P/E when you consider the actual growth (or lack of it) that we are now seeing.

 

 

 

Disclosure: No positions on Baidu ($BIDU) or AOL ($AOL), this trade will be opened on Monday morning

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2 Comments

  1. Comment by Ken — August 8, 2012 @ 1:14 pm

    I think that your numerics are always excellent, but you tend to discount qualitative factors which can play just as big a role.

    In the case of explaining AOL’s recent excellent performance, I think people have a lot of faith in Ariana Huffington, it’s as simple as that.

  2. Comment by IS — August 9, 2012 @ 7:35 pm

    @Ken – Very fair point, no doubt about it. Those are always difficult to evaluate and I do try my best. I really have seen a lot of mixed feedback about Ariana Huffington but clearly, I agree, she is doing a lot of very solid work

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