Anyone active in the stock market is looking for solid returns, but is often faced with a problem: how to cut through all the noise and reams of data in order to generate those gains. Seasoned market participants will say there are all kinds of different strategies to follow, but one of the most straightforward ones is to track the moves made by Wall Street’s investing legends.
And hardly any come with a more stellar reputation than hedge fund manager David Tepper. The billionaire investor is the founder of Appaloosa Management and his savvy investment strategies and ability to navigate volatile markets have earned him a reputation as one of the most skilled and influential investors in the world. These skills have also translated into a substantial fortune of $18.5 billion. Therefore, whenever Tepper opens his checkbook, investors are naturally eager to see what he adds to his shopping cart.
Recently, Tepper has been busy loading up on some equities and when we say loading up, we mean it – he has been pouring hundreds of millions into a pair of stocks. However, it’s not only Tepper who is bullish here. The analysts at banking giant Goldman Sachs are also singing these names’ praises.
If that’s not enticing enough, according to the TipRanks database, both stocks are also rated as Strong Buys by the analyst consensus. So, let’s find out why they are drawing plaudits across the board right now.
Baidu, Inc. (BIDU)
Headquartered in Beijing, Baidu is often referred to as the “Google of China” due to its extensive involvement in search engine development and online services. Its flagship product, the Baidu search engine, is the most widely used search platform in China, commanding a 59% share of the market. Over the years, just like its US counterpart, Baidu has expanded its offerings to encompass a diverse range of digital services, including online advertising, cloud computing, mapping, and autonomous driving technology.
Furthermore, Baidu has emerged as a trailblazer in the AI field and operates Baidu Research, where it conducts studies in areas like natural language processing, computer vision, and speech recognition. In fact, Baidu became the first major Chinese tech company to introduce a competitor to ChatGPT. In March, it debuted its language AI bot, Ernie.
Boosted by a solid display of its online marketing business, in the just released Q2 print, the company exceeded expectations. Revenue reached $4.7 billion, in what amounted to a 15% year-over-year increase whilst outpacing the estimates by $130 million. Likewise, at the other end of the scale, adj. EPADS (earnings per American depository share) of $3.11 trumped the $2.33 anticipated by Wall Street.
Tepper must be pleased with that performance. During Q2 he opened a new position, with the purchase of 1,275,000 BIDU shares. These currently command a market value of almost $168 million.
For Goldman Sachs analyst Lincoln Kong, it is a combination of several factors that makes BIDU stock appealing.
“We view Baidu as one of the best positioned China Internet names pivoting to the secular Generative AI theme, with its expanding AI product suite backed by its 4 layers of Generative AI service offerings,” Kong wrote. “Near term in 2H23, we believe Baidu is on track for steady search advertising recovery amid its high exposure to offline SME merchants, with potential margin upside from operating leverage.”
“While Baidu has emerged as a relative outperformer amongst the China Internet large caps YTD and now trades at 14x 12mf P/E, we look for 32%/62% further upside from the current share price in our base/bull cases, as we expect Baidu’s earnings to remain on an upward revision cycle with room for valuation multiple expansion supported by a lineup of upward catalysts,” the analyst added.
These comments underpin Kong’s Buy rating on BIDU, while his $197 price target suggests shares will climb ~50% higher over the coming year. (To watch Kong’s track record, click here)
Where do other analysts stand on BIDU? Overall, 9 Buys and 2 Holds have been issued in the last three months. Therefore, BIDU gets a Strong Buy consensus rating. Given the $184.45 average price target, shares could surge 40% in the next year. (See Baidu stock forecast)
Alibaba Group (BABA)
From one Chinese internet giant to an even bigger one. Alibaba hardly needs any introduction as it is a leading player in the global e-commerce and tech landscape and one of the biggest companies in the world. Founded by Jack Ma in 1999, Alibaba has grown to oversee a diverse range of businesses encompassing e-commerce, cloud computing, digital payments, logistics, entertainment, and more. At the heart of its success is its e-commerce platform, Alibaba.com, which connects buyers and sellers, enabling businesses and individuals to engage in online trade on a massive scale.
Notching its first instance of double-digit sales growth since F3Q22 (December 2021 quarter), the company delivered beats both on the top-and bottom-line when it released its first quarter of fiscal 2024 report (June quarter) earlier this month. Revenue increased by 14% year-over-year to reach $32.29 billion, beating the consensus estimate by $1.08 billion while adj. EPADS of $2.40 came in ahead of the forecast by $0.39.
During the same period, the company showcased its commitment to enhancing shareholder value by repurchasing $3.1 billion worth of ADSs. The close of the last quarter was also marked by the introduction of the company’s new organizational structure. Alibaba has now divided the business into six distinct groups.
Tepper is among those that have been impressed by BABA. Increasing its holding by a whopping 4375%, Appaloosa has pulled the trigger on 4,375,000 shares in Q2. At 4,475,000 shares, the total position is valued at ~$403.6 million.
The company also has a fan in Goldman Sachs analyst Ronald Keung, who outlines the many reasons for his bullish take on BABA.
“We believe management’s proactive steps in crystallizing shareholder value (via ongoing buybacks, proposed cloud business full distribution to shareholders, commitment of dual-primary listing and a narrowing of losses at subsidiaries with its “1+6+N” reorganization), next growth drivers across Alibaba Cloud (with structural growth ahead on generative AI adoption despite recent growth softness in project-based cloud) and International (Lazada and AliExpress) that enters into easy bases, alongside the return of founders driving Taobao Tmall Group’s three-year fight-back plan to defend its market leadership position within China eCommerce, will bring a valuation multiple re-rating for the stock. We view valuation as attractive,” Keung opined.
To this end, Keung rates BABA shares a Buy, backed by a $138 price target. The implication for investors? Upside of 46% from current levels. (To watch Keung’s track record, click here)
Overall, 16 analysts have recently waded in with BABA reviews and these breakdown into 15 Buys and 1 Hold, all naturally coalescing to a Strong Buy consensus rating. The analysts see shares rising by ~57% over the coming months, considering the average target stands at $141.44. (See BABA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.