DailyPlay – Portfolio Review – May 20, 2024
DailyPlay Portfolio Review Investment Rationale As equities...
Read MoreAs China’s leader in AI, Baidu trades at a significant discount and presents a rare opportunity for investors to gain long exposure to AI at a bargain-basement valuation. Its LLM AI chatbot ERNIE recently surpassed 200M users which, which includes over 85,000 revenue-generating enterprise clients. We are using the multi-year underperformance of BIDU’s stock as an opportunity to enter an investment with a favorable risk to reward.
Technical Analysis
Since July of last year, BIDU has declined about 40% but just last week, momentum turned positive and BIDU broke out above its bearish trendline. The immediate upside target is only $117, but a break above that would target $135 and $150 as extended targets.
BIDU – Daily
Fundamental Analysis
BIDU trades at only 11x forward earnings, despite analysts expecting EPS to grow by 10% and Revenues by 12%. This is despite a very healthy net margin of 15% and an AI user base that has doubled in less than 6 months. As revenues from its AI business start to show up in earnings, I expect BIDU to start trading closer to its median valuation of 18x for its peers.
Strategy: Long Call Vertical Spread
Direction: Bullish Debit Spread
Details: Buy to Open 4 Contracts July 19th $115/$135 Call Vertical Spreads @ $5.62 Debit per contract.
Total Risk: This trade has a max risk of $2,248 (4 Contracts x $562) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $562 to select the # contracts for your portfolio.
Trend Continuation Signal: This is a bullish trade on a stock that is in a bullish trend.
1M/6M Trends: Bullish/ Mildly Bullish
Relative Strength: 5/10
OptionsPlay Score: 123
Stop Loss: @ $2.81 Debit. (50% loss of premium paid)
Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade.
Please note that these prices are based on Friday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry.
DailyPlay Portfolio Review Investment Rationale As equities...
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