Baidu and Walker & Dunlop have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 14, 2023 – Zacks Equity Research shares Baidu BIDU as the Bull of the Day and Walker & Dunlop WD as the Bear of the Day. In addition, Zacks Equity Research provides analysis on ARK Fintech Innovation ETF ARKF and MercadoLibre MELI.
Here is a synopsis of all four stocks:
Bull of the Day:
Zacks Rank #1 stock (Strong Buy) Baidu is a Chinese-language internet search provider based in Beijing. Baidu is the largest search provider in China. Like its American counterpart, Google, Baidu offers a plethora of services beyond traditional search, including maps, online communities, an encyclopedia, and a cloud-based storage service.
Breaking into Artificial Intelligence
Open AI's artificial intelligence chatbot called ChatGPT launched in 2022. Though artificial intelligence has been around for years, ChatGPT is the first AI chat bot to go viral. The service reached 100 million daily active users just two months after launch and already has a valuation of around $30 billion and investments from notable tech juggernauts such as Microsoft.
Now, Baidu is looking to follow suit and drive growth through a chatbot dubbed "Ernie Bot," which the company announced last month. With the announcement of "Ernie Bot", Baidu is the front runner in the Chinese race to make a ChatGpt competitor and is positioning itself well to do so. In Baidu's last earnings call, management underscored the importance of AI for BIDU by saying:
"2022 was a challenging year, but we used this period to prepare the company for better times. In 2023, we believe we have a clear path to reaccelerate our revenue growth, and we are now well positioned to make use of the opportunities that China's economic recovery offers us," said Robin Li, Co-founder and CEO of Baidu. "With our long-term investments in AI, we are poised to capitalize on the imminent inflection point in AI, unlocking exciting new opportunities across our entire business portfolio - from mobile ecosystem to AI Cloud, autonomous driving, smart devices, and beyond."
Analysts Have High Expectations
With Baidu's "Ernie Bot" set to launch soon, analysts are warming up to the stock. Zacks Consensus Analyst Estimates suggest that earnings will reaccelerate by 46% year-over-year for the current quarter. On an annual basis, analysts expect healthy growth of 35% year-over-year.
Valuation
From a price-to-sales perspective, Baidu's valuation is nearly the lowest it has been since inception.
Technical View
BIDU shares have performed well over the past six months. In January, shares leaped back over the 200-day moving average for the first time in months. The 50-day moving average also recently crossed back above the 200-day moving average – signaling a bullish "Golden Cross". Shares are now retesting the 200-day.
Takeaway
Artificial intelligence is already driving significant changes across multiple industries and is expected to play an increasingly important role in shaping the future. Shares of Baidu should benefit handsomely from the launch of their chatbot, a recovering Chinese economy, and a reacceleration of revenue growth. Furthermore, with its historically low valuation, BIDU will likely attract investors who follow a "GARP" (growth at a reasonable price). Expect shares to move higher over the next 6-12 months.
Bear of the Day:
Overview
Zacks Rank #5 (Strong Sell) stock Walker & Dunlop provides commercial real estate financial services in the United States, with a primary focus on multifamily lending. The company also offers service loans for life insurance companies, commercial banks and other institutional investors as a loan broker. The Multifamily and FHA Finance groups of Walker & Dunlop are focused on lending to property owners, investors, and developers of multifamily properties across the country.
The Capital Markets and Investment Services groups provide a broad range of advisory, financing, investment consulting and related services. Walker & Dunlop's Healthcare Finance group provides debt financing for healthcare properties. The company's principal Investments include origination, underwriting, execution and management of commercial real estate opportunities across property types and geographies within the continental United States. Walker & Dunlop, LLC is based in Bethesda, Maryland.
Rising Mortgage Rates are a Headwind
In just the past year, mortgage rates have gone from below 3% to north of 5%. Higher mortgage rates are a headwind for mortgage-related stocks such as Walker Dunlop because it makes buying a home much more expensive, killing demand for mortgages. Beyond slower demand, higher interest rates may increase the cost of borrowing for mortgage companies, which can eat into profitability. This occurs because mortgage companies often borrow money to fund their operations, and higher interest rates can increase their borrowing costs.
Fundamentals
The rise in rates is already having a significant impact on Walker Dunlop's earnings. In the most recent quarter, EPS was -38% and revenue was -31% year-over-year. What's worse is that Zacks Consensus estimates show that analysts expect the slow growth to continue. In the past 60 days, estimates have dropped for the second quarter and full year.
Price and Volume Action
Walker Dunlop's technical picture is reminiscent of its fundamental picture – not pretty. The stock got stuffed at its 200-day moving average and is testing multi-month lows.
While the stock can bounce in the short-term, the intermediate-term is less favorable.
Takeaway
High mortgage rates negatively impact demand for mortgages, lowering profits and revenue for companies such as Walker Dunlop. Combined with the ugly macro environment and the uncertainty in the banking sector, WD shares should be avoided for now.
Additional content:
Top Cathie Wood Stock Poised for Explosive Upside: Key Level to Watch
Agree or disagree with her approach, Cathie Wood has remained steadfast through it all, unwavering in her strategy during one of the worst bear markets for growth stocks in history.
Her set of ARK ETFs are off to a hot start in 2023 after a year to forget last year. Despite a notable drawdown from the high in early February, the ARK Fintech Innovation ETF is still up nearly 18% year-to-date, handily outperforming the major U.S. indices. ARKF is an actively managed ETF that seeks long-term growth of capital by investing in companies that introduce technologies aimed at changing the way the financial sector operates.
The ARK Fintech Innovation ETF contains several well-known market leaders that innovate in fields such as mobile payments, blockchain technology, digital wallets, and peer-to-peer lending. One such company is MercadoLibre, a Latin American e-commerce giant that has risen more than 90% off the bear market lows. To put that into context, the S&P 500 is only up about 8% from the lows of last year.
The stock has recently met resistance at about $1,265/share, which coincides with the April high point last year. A break above this level would indicate another leg higher.
MELI makes up nearly 6% of the total ARKF holdings. MercadoLibre operates an online e-commerce platform that enables businesses, merchants, and individuals to list merchandise and conduct sales and purchases online. Through Mercado Shops, users can setup, manage, and promote their own digital stores. The MELI platform boasts nearly 670 million monthly visitors.
The company's retail sales and fintech payments have exploded through its Pago feature. Mercado Pago is a financial platform that enables transactions via the company's marketplaces, allowing users to virtually send and receive funds. Mercado Crédito extends loans and credit to individuals and businesses.
MELI, a Zacks Rank #1 (Strong Buy), has exceeded earnings estimates in three of the past four quarters. The company most recently announced fourth-quarter earnings back in February of $3.25/share, a 54.03% surprise over the $2.11 Zacks Consensus Estimate. The EPS figure compared favorably to the -$0.92/share loss during the same quarter in the prior year. Sales of $3 billion grew 41% year-over-year and also beat projections.
MercadoLibre has delivered a trailing four-quarter average earnings surprise of 21.95%. Earnings estimates are on the rise, with analysts in agreement in terms of revisions. For the current year, analysts have raised earnings estimates by 15.35% in the past 30 days. The 2023 Zacks Consensus Estimate now stands at $15.78/share, translating to potential growth of 65.58% relative to last year. Sales are anticipated to climb 22.66% to $12.93 billion.
MELI is ranked favorably by our Zacks Style Scores, with a top-rated 'A' mark in our Growth category. This indicates further upside is likely based on promising sales and earnings growth forecasts.
MercadoLibre is benefiting from strength in commerce and fintech businesses. Robust product offerings and credit portfolio expansion are driving revenues. A well-established e-commerce giant, MELI is poised to take advantage of increasing internet penetration in Latin America.
Make sure to keep an eye on MELI and the fintech innovation space.
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Baidu, Inc. (BIDU) : Free Stock Analysis Report
Walker & Dunlop, Inc. (WD) : Free Stock Analysis Report
MercadoLibre, Inc. (MELI) : Free Stock Analysis Report
ARK Fintech Innovation ETF (ARKF): ETF Research Reports
