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Baidu Looking Good for the Long Term

Stocks in this article: BIDU GOOG

NEW YORK ( TheStreet) -- Surprise volatility is a common characteristic in Chinese stocks.

But there are still companies with stable fundamentals and positive outlooks that can be found trading at bargain prices. One example can be seen in Baidu (BIDU), the company typically referred to as the "Chinese Google."

Baidu commands an impressive 70% market share in China's online ads and search spending. The stock has been beaten up in recent months and shows year-to-date losses of nearly 10%. This creates a scenario where valuations are relatively cheap at a time when growth rates are poised to make large runs higher.

The broader scenario in China looks bleak at the moment.

The country's credit bubble bears some alarming similarities to the U.S. credit crisis in 2008. This has pushed down Chinese stock values by nearly 15% so far this year, a stark contrast with the bull run in global markets during the same period.

From a value perspective, however, this has left some quality companies wallowing in oversold territory. For investors with long- term time, some attractive opportunities can be found -- and one of the stronger cases can be made for Baidu.

Its revenue are expected to rise by 35% in 2013, based largely on continued growth in the number of Chinese internet users. Lower-tier advertisers recognize these trends and continue to direct more advertising money toward online venues.

Earnings per share for 2013 are expected to hold below $5, however, and this weaker increase (a mere 4%) is being attributed to rising costs and stalling sales.

Looking at stock values, the latest run lower has shaken-out many of the most bullish investors, and damaged sentiment for the stock's prospects. The highs from 2011 topped-out at nearly $160, and Baidu now trades below $90 (or 18 times earnings).

Still, this compares favorably to some of the sector's main players, as Google's (GOOG) valuation is now seen at 26.4 times earninGs

. And when we look at projected earnings per share, Baidu's valuations start to look excessively cheap.

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