4 Chinese Internet Stocks Actually Worth Buying

It is never a good thing when a stock breaks its IPO price shortly after the
initial surge from its post-IPO fever is over. And that's exactly what we saw
happen with RenRen (NASDAQ: RENN ), the so-called Facebook of China. RenRen
combines two of the hottest Internet stock concepts: social networking and group
purchasing. It operates a large social network in China that is similar to
Facebook, as well as a group purchasing site that provides daily deals on local
services and cultural events similar to Groupon. However, as I predicted, the
RenRen IPO was too hot too handle . In the past few days, the stock has
plummeted down below its IPO pricing of $14 a steep 40%-plus drop from the $24
high it saw on its first day of trading just one week ago! This is reminiscent
of U.S. Internet stock performance back in late 1999 and 2000. At first,
Internet stocks would surge on the first day of trading, and then continue those
gains for the months ahead. But about a month before the market top in March
2000, Internet IPOs began to break below their IPO prices, sometimes on the
first day of trading. Game Over for Chinese Internet Stocks? I dont think that
RenRens performance is necessarily a bad omen for Chinese Internet stocks, but
it does emphasize the need to pick and choose rather than haphazardly buying
just any Chinese IPO that happens to combine a few of Wall Streets favorite
buzzwords. As I previously mentioned, there were several red flags here,
including tepid growth, a lack of user engagement, and competition from more
established Chinese Internet companies that has eroded the RenRens userbase.
None of this is what investors want to see when shares are priced at such high
valuations. In fact, despite selling off more than 40% from its post-IPO high,
RenRen still trades at 70 times sales. Compare that with the 25 times sales that
Facebook shares fetch in the private markets! So, rather than spending more time
on RenRen, lets take a look at four other more established and fairly valued
Chinese Internet stocks that are likely to hand you significant gains in the
next year. Chinese Internet Buy #1: Baidu.com (BIDU) Although RenRen is
overvalued at the moment, that doesnt necessarily mean it wont be a viable
investment someday. I say this because Baidu.com (NASDAQ: BIDU ) also had a
tough time in the first couple of years of its post-IPO existence. It took Baidu
a full two years to take out its post-IPO high, but when shares started moving,
wow, did they move fast! In the past five years, BIDU shares are up a whopping
2,100%, illustrating the potential gains to be had in the Chinese Internet
stocks. Now, we didnt get in quite that early to BIDU shares when I launched my
China Strategy service , but we still managed to lock in an impressive 368% for
our portfolio. Really, success in the Chinese Internet space comes down to
operational performance. Baidu understood their customers better than their
competitors, and as a result, the company enjoys a monopoly on the online search
business in China today.