Baidu and Changyou.com to Open Near 52-Week Highs

Baidu (NASDAQ: BIDU) and Changyou.com (NASDAQ: CYOU) reached new 52-week highs of $157.90 and $49.84 per share, respectively, in Monday's trading session.

Baidu's second quarter results came in well ahead consensus estimates and it offered a robust third-quarter sales forecast. Beijing-based Baidu provides Chinese and Japanese language Internet search services, and it also offers online entertainment platforms, an instant messaging service and a consumer-oriented e-commerce platform. The company has a market cap of $54.6 billion.

Baidu has a long-term earnings per share growth forecast of 43.3%. Even though the P/E ratio is higher than the industry average and the PEG ratio is 1.3, the consensus recommendation of analysts is to buy BIDU. The stock has outperformed its industry average, as well as competitors Sohu.com (NASDAQ: SOHU) and Google (NASDAQ: GOOG), year to date.

Changyou.com saw T.H. Capital initiate coverage of the stock with a Buy rating and a $57 price target, noting that newly developed in-house game, Duke of Mount Deer, could be a long-term revenue driver. Changyou has an $2.6 billion market cap and it develops, operates, and licenses massively multiplayer online role-playing games (MMORPGs), including Tian Long Ba Bu and Blade Online.

Changyou's long-term EPS growth forecast is 15.4%. The P/E ratio is 13.9, much lower than the industry average, and the PEG ratio is 0.8. Shares are trading more than 52% higher than six months ago. In that time, the stock has outperformed its industry average and competitors such as NetEase (NASDAQ: NTES) and Shanda Interactive (NASDAQ: SNDA).

Action Items:

Bullish: Traders interested in exchange traded funds invested in Baidu and Changyou might want to consider the following trades:

• PowerShares QQQ Trust, Series 1 (NASDAQ: QQQ): +28.1% in the past year
• SPDR S&P China ETF (NYSE: GXC): +7.9% in the past year
• PowerShares Golden Dragon Halter USX China Portfolio (NYSE: PGJ): +9.4% in the past year
• First Trust ISE Chindia Index Fund (NYSE: FNI): +15.6% in the past year

Bearish: Traders skeptical about investing in China might want to consider this alternative position:

• ProShares UltraShort FTSE/Xinhua China 25 (NYSE: FXP): +229.3% in the past year

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