Meanwhile, Internet usage and Web search has a long runway in China. The country has more people using the Web than the U.S., yet only about a third of its population has an Internet connection.

In addition to dealing with a slowdown in China's economic growth, Baidu faces new competition from Qihoo 360 Technology, maker of China's most popular Web portal.

However, concerns about Qihoo strike us as a bit overdone. Baidu is so dominant in the China search market -- with a 78.6% market share -- the entrance of a smaller competitor is unlikely to dramatically alter its position.

Baidu still has a lot of opportunity in front of it.  The exploding growth of smartphones in China dramatically increases the size of the potential market. Navigating the switch from a PC-based search business to a mobile one is daunting, but no more daunting for Baidu than it is for Google in the U.S.

We think that growth potential more than offsets any concerns investors might have about slower economic growth in China as a whole and increased competition. Excluding its $8.44 per share in net cash and investments, Baidu now trades at a bit above 16 times the 2013 EPS consensus, making it a fairly inexpensive growth stock in our view.

Investing in China has its risks, but Baidu is one of the few Chinese stocks we'd consider buying, especially down at these levels.

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