As of March 26, Baidu stock was trading down by 20 percent compared to its price on March 23. Certain news has impacted Baidu and other Chinese technology names. Investors wonder whether they should buy or sell Baidu (BIDU) stock based on its forecast.
Archegos Capital Management, a U.S.-based hedge fund, was forced to liquidate positions in some stocks, including Baidu, which led to the selling pressure on these names.
Another piece of news that could be pressuring Baidu and other Chinese names is the fiery exchange of words between U.S. and Chinese diplomats during their meeting in Alaska. The meeting added to the already tense situation between the two countries. There are concerns that Chinese names will be subject to more scrutiny in the U.S.
The Chinese names have been hammered repeatedly due to delisting concerns. The SEC has threatened to delist Chinese stocks that don't comply with U.S. auditing practices. On March 27, the SEC reiterated that it had to issue rules within 90 days of the date of enactment to establish the rules according to which the affected companies must comply with the documentation submission requirement.
Archegos and Baidu (BIDU) stock
Archegos Capital Management was founded by the former Tiger Management equity analyst, Bill Hwang. The multibillion-dollar family office was forced to liquidate positions in some stocks, which led to selling pressure on them. These stocks include media names like ViacomCBS, Discovery, and Chinese internet names including Baidu, Tencent, and Vipshop.
According to CNBC, while it tried reaching out to Archegos Capital, its calls and emails weren't returned. It also cited sources saying that the forced sales were likely a result of margin calls due to heavily leveraged positions. Nomura and Credit Suisse warned that they face huge losses due to Archegos Capital’s stock dump driven by default on margin calls.
Baidu's stock forecast
According to Market Beat, Baidu stock is covered by 17 Wall Street analysts. Among the analysts, 15 have a buy and two have a hold rating for the stock. Analysts’ average target price is $267.13, which implies an upside of 28 percent for the stock. On March 29, Loop Capital upgraded BIDU stock from hold to buy.
Loop Capital analyst Rob Sanderson said that China is expected to lead in autonomous vehicle adoption, according to The Fly. It sees Baidu's Apollo business leading in the race to commercialization by a wide margin across "many metrics."
Should I buy or sell Baidu stock?
The increased regulation of domestic Chinese technology companies by the Chinese government and the ongoing skepticism by U.S. regulators could lead to more pressure on Chinese tech stocks, including on Baidu. However, the pullback in Baidu should be seen as a buying opportunity by investors. Fundamentally, Baidu's prospects are still strong.
A large part of the recent sell-off in Baidu stock is due to the forced liquidation of positions by Archegos Capital, which does nothing to the sound investment case for the stock. The company’s profit will likely grow by double-digits over the next few years. Baidu is aggressively diversifying itself to reduce its dependence on advertising. The company plans to manufacture its own electric cars.
In January, the company set up a new venture to produce electric vehicles with the help of Chinese automaker Geely. It's also increasing its exposure to the live streaming market with its content creation platform BJH. Over time, these efforts should add to its top line and bottom line. The company should continue to benefit from secular growth trends in China, which will be reflected in its price. A pullback is a good time to buy into a secular growth story like Baidu. After all, Cathie Wood's ARK Invest also bought 480,137 shares of Baidu on March 26.