Monday, April 11, 2011

Buy Yahoo! (YHOO) Sell Baidu (BIDU)?

Even though Baidu (NASDAQ:BIDU) has enjoyed the type of investor love Google (NASDAQ:GOOG), in what may be shocking to some, Yahoo! (NASDAQ:YHOO) at this time may be the better buy of the two, after Baidu's long run over the last couple of years which has pushed its share price up 11 fold.

Obviously you wanted to hold Baidu during that time, but that was then and this is now.

Even more surprising to investors in 2011, Yahoo is expected to earn over 14 percent for the year, bringing its total earnings to $997 million, while Baidu's earnings are estimated to reach $876 million.

And taking into account the fact that Yahoo's cash holdings are $3.5 billion, about three times the amount Baidu has on hand.

So with Yahoo selling at 1.77 times book value and Baidu at 38 times book value, you can see the extreme undervaluation of Yahoo when taking the above data into account versus Baidu's potential to be in a bubble situation.

Baidu was trading at $145.90, gaining $4.02, or 2.83 percent, as of 12:40 PM EDT. Yahoo was trading at $16.65, falling $0.12, or 0.72 percent.

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