Why You Should Buy Baidu Inc (ADR) (BIDU) Stock in 2017

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Chinese search and technology giant Baidu Inc (ADR) (NASDAQ:BIDU) is speaking Greek to this portfolio strategist. For like-minded bullish investors that want to position for a breakout and relative strength performance in 2017 in BIDU stock, that translates into a juicy trading strategy.

Why You Should Buy Baidu Inc (ADR) (BIDU) Stock Now

This past year wasn’t a good one for BIDU shareholders in the U.S. The American Depository Receipt lost 13% compared to the S&P 500’s gain of about 9.5%. Part of the drag can be attributed to strength in the U.S. dollar and currency translation from a weakened Chinese yuan.

Foreign exchange could continue to be a headwind for BIDU stock. But with today’s market “King Dollar”-style chest-pounding and adoration, I’m reminded of a time not so many years ago when the death of the dollar was the overriding narrative of the day.

Call me a contrarian, but I’m willing to bet that the greenback’s support from interest rates and Trump bluster will fade. In their place, shiny new market narratives that are not so benign will prevail. That should help BIDU investors.

What should also spur a bullish 2017 in Baidu is the company itself. Not only does Baidu dominate the search market in China, but after a regulatory rough patch, profits and revenues are expected to rebound from a trough in sales.

Baidu is also venturing aggressively into new markets. From artificial intelligence and broad-based internet offerings ranging from travel booking, online restaurant delivery, maps and video, Baidu is on a mission to become ubiquitous within China.

Will the investment by Baidu management pay off? Like everything else, there are no guarantees, but let’s face it: China’s authoritarian policies should continue to be a boon for a formidable large-caps such as Baidu.

Besides, BIDU stock is offering the potential to buy growth at a discount, and the stock chart situation looks pretty attractive, too.

BIDU Stock Chart

BIDU stock chart
Click to Enlarge
Source: Charts by TradingView

An oversold and bullishly divergent stochastic backs up the attractive price action and the proposition of buying BIDU on weakness.

Should technical support hold, the stage looks set for Baidu stock to rally, break through pattern resistance near $190 and move into a strong uptrend in 2017.

How to Trade Baidu Stock

I’ve reviewed BIDU’s options board, and acknowledging that we should hedge our optimism just a bit, I’ve decided on a modified collar play. I say to buy Baidu, purchase the Feb $155/$140 bear put spread and sell the Feb $185 call.

The combination trades for around $168.50 versus buying shares of Baidu outright for $168.30. Yes, that’s not much of a difference, but this packaged spread also provides partial downside protection from the bear vertical in the event BIDU moves lower. The cost is virtually covered by the sale of the call as determined by the 20-cent price difference between strategies.

The short call does cap the position upside to around 10%, but were a rally of that size to play out by February expiration, that’s a nice annualized gain. Additionally, depending on the trader’s continued outlook for BIDU stock, you can always adjust and roll the options.

An adjustment to the collar would allow you to buy shares advantageously on price weakness versus a non-hedged long stock position.

Alternatively, should shares of Baidu trend higher, you can also roll the position to participate and profit from price action above the initial sold $185 strike call — if you remain convinced of BIDU’s technical legs.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/baidu-inc-adr-bidu-stock-2017-buy/.

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