5 More Tech Stocks That Are Making Me Rich

Welcome back to week 26 of the Big Idea Portfolio. None of my stocks moved much in a week that saw the Dow Jones Industrial Average generate nearly half its June gains, putting me back in the red in this three-year contest. More on what's holding back my portfolio, and more tech stock news, in a minute. First, let's dig into the numbers:

Company

Starting Price*

Recent Price

Total Return

Apple (Nasdaq: AAPL  ) $422.46 $584.00 38.2%
Google (Nasdaq: GOOG  ) $650.09 $580.07 (10.8%)
Rackspace Hosting $41.65 $43.94 5.5%
Riverbed Technology $25.95 $16.15 (37.8%)
Salesforce.com $100.93 $138.26 36.9%
AVERAGE RETURN -- -- 6.40%
S&P 500 SPDR $126.50** $136.10 7.59%
DIFFERENCE -- -- (1.19)

Source: Yahoo! Finance. *Tracking began at market close on Jan. 6, 2012. **Adjusted for dividends and other returns of capital.

The week that was
After marginal losses the week prior, index investors had to love last week's rally. Once more the small-cap Russell 2000 led its larger peers, gaining 3.01% over the past five trading days. The S&P 500 ranked next, up 2.03%, while the Dow and Nasdaq Composite improved 1.89% and 1.47%, respectively, CNBC reports. The rally cheered investors and sent the CBOE Volatility Index, or VIX, a common yardstick for measuring fear of short-term losses, down nearly 6%.

A breakthrough deal to stabilize European markets probably helped boost confidence. At a meeting in Brussels, EU leaders agreed that rescue funds could be used to prop up Italy's and Spain's bond values without imposing additional austerity measures on either country.

Here in the U.S., the Supreme Court shocked, well, just about everyone, when it upheld most of the provisions of the Affordable Care Act -- or "Obamacare," according to the common vernacular. Chief Justice John Roberts joined a majority that included several of the court's more liberal justices in ruling that insurers can't deny coverage on the basis of pre-existing conditions, among other provisions. Shares of national health insurers have fallen on the news, with WellPoint (NYSE: WLP  ) , down more than 9% since last Thursday, leading the way.

Tech poppers and floppers
Innovators had a mixed week, with Google getting headlines for new products introduced at its annual I/O developer conference in San Francisco, including:

  • Nexus 7, Google's new tablet. Asus is building the device with help from NVIDIA, which has supplied the tab's quad-core processor. But tech specs aren't the story here. In a broadside aimed at the Kindle Fire, Google plans to sell the Nexus 7 for as little as $199. That's the good news. The bad? Google doesn't appear interested in supporting Amazon.com's (Nasdaq: AMZN  ) Instant Video marketplace, choosing instead to get Nexus 7 users buying more from the Google Play video and audio stores. Ironic, since Amazon has also stiff-armed Galaxy Tab owners by refusing to make an Instant Video app available for the device.
  • Nexus Q, a set-top box that allows for social sharing of audio and video playlists. Here, too, the search king is attempting to get more users buying from the Google Play stores by limiting third-party-supplier access. Netflix (Nasdaq: NFLX  ) , for example, won't get the same consideration in Nexus Q that Apple gives to its longtime streaming partner.
  • Google Glasses, experimental specs we've been hearing about for months. At Google I/O, co-founder Sergey Brin talked up the idea of having an unobtrusive heads-up display available for using the Internet to enhance -- rather than avoid -- the real world around us. Crazy, you say? Perhaps, but this is just the sort of crazy that's made Google a great investment in years past.

Do you agree? Which tech stocks do you like now and over the next three years? Please weigh in using the comments box below.

And see you back here over the weekend for more tech stock talk. In the meantime, remember to check out the Fool's latest special report -- "The 3 Dow Stocks Dividend Investors Need" -- and add the Big Idea portfolio stocks to your Foolish watchlist for ongoing, up-to-the-minute coverage. Both the report and the watchlist are 100% free to Fools:

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple, Google, Netflix, Rackspace Hosting, Riverbed Technology, and Salesforce.com at the time of publication. He also had a long-term call options position in Netflix. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Amazon.com, salesforce.com, WellPoint, Netflix, Riverbed Technology, Google, and Apple. Motley Fool newsletter services have recommended buying shares of WellPoint, Netflix, Salesforce.com, Apple, NVIDIA, Google, Rackspace Hosting, Riverbed Technology, and Amazon.com. Motley Fool newsletter services have recommended creating a bull call spread position in Apple; writing puts on NVIDIA; creating a stock position in Riverbed Technology; and creating a bear put spread position in salesforce.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2012, at 2:43 PM, kramsigenak wrote:

    You should have stuck with Akamai.

  • Report this Comment On July 02, 2012, at 3:39 PM, TMFMileHigh wrote:

    @kramsigenak,

    >>You should have stuck with Akamai.

    OK. Care to explain why you think so? I'm genuinely curious. (For the record, shares of Akamai are down about 3% since the beginning of this edition of the contest.)

    FWIW and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On July 02, 2012, at 4:10 PM, kramsigenak wrote:

    Thanks Tim,

    Akamai is still a technical leader in the field for CDN and SAS. They still have a decent moat (albeit it smaller than before). The valuation is about where it should be for a growth stock (just sub 30).

    Not saying it was the worst decision when you sold but... I sold at 52 (from 18). Since 18 it has climbed back to 30.

    They have patents on CDN technology that give them great value as the internet, content, and Software as a Service continue to expand.

    Why not stick with an industry leader, strongly tied to internet growth? Unless we think the internet is a fad :)

    Then there's mobile... nearly every time I watch a video on my iPhone, the address takes me to a akamai provided site. Seems to me they are still very well positioned.

  • Report this Comment On July 05, 2012, at 1:52 PM, kramsigenak wrote:

    Cat got your tongue?

  • Report this Comment On August 21, 2012, at 11:11 PM, MHedgeFundTrader wrote:

    Mr. Market sometimes speaks in mysterious tongues, and you really have to wonder what he is struggling to tell us by taking the Volatility Index (VIX) down to a subterranean $13 handle on Friday, a new five year low.

    A number of advisors have been recommending that investors load up on the (VIX) in recent months to give them downside protection from an imminent market crash. Those who followed such advice were hammered, their clients no doubt striking them off invitation lists for summer barbeques.

    In the past month, the (VIX) has cratered from $20 to $13. Just last October, it touched $49, when I urged readers to pile in on the short side. I came out in the mid-$30’s weeks later.

    Those who traded the triple leveraged (TVIX) fared even worse, this blighted ETF plunging from $5 to $2.50 during the same period. The (TVIX) is doing the best impression of an ETF going to zero that I know of. A year ago it was trading at $110. This is why I plead with traders to avoid triple leveraged ETF’s like the plague. These things are designed for day trading by hedge funds only. Eventually, they all go to zero.

    I am even seeing this in my own portfolio. A week ago, I sold short the September, 2012 (SPY) $147 calls at $0.38. A week later, the (SPY) has risen by 1.2% but the call options have done a swan dive to $0.34. This can only happen when they are crushing volatility.

    I quit recommending (VIX) plays in March when I realized that there is some sort of arbitrage going on in the hedge fund community that is punishing (VIX) owners. I haven’t figured out the exact mathematical dynamics yet, but it has to involve selling short the cash stocks and shorting (VIX) contracts against them. Whatever they lose on the cash short is more than made up by the profits on their (VIX) short.

    It’s easy to see how successful this would be. While August (VIX) traded at a lowly 13.40%, September volatility is still up at 18%, and January, 2013 is trading at a positively nosebleed 25%. That spread provides a lot of room to take in some serious money.

    So what is the 13% really trying to tell us? Here are some thoughts:

    *It is discounting multiple tranches of quantitative easing by central banks around the world that take all asset prices up for the rest of the year.

    *It reflects the complete abandonment of the stock market by the individual investor, which is why trading volume has collapsed.

    *It also indicates how exchange traded funds are taking over, sucking volume out of the stock market. The (VIX) doesn’t reflect activity in ETF’s.

    *It could be discounting an Obama win in the presidential election. Stocks have delivered a 72% return since the Obama inauguration, the third best in history after Franklin Roosevelt and Bill Clinton. Mixed stock and bond portfolios have delivered the best returns on record, with both asset classes appreciating dramatically for 3 ½ years, something that never happens.

    It could be that the (VIX) at this level has it all wrong, and that a stock market selloff is about to send it soaring. Those who have rigidly held on to that belief until now have been severely tested.

    For those who have fortunately avoided the (VIX) trade so far, let me give you a quick primer. The CBOE Volatility Index (VIX) is a measure of the implied volatility of the S&P 500 stock index. You may know of this from the talking heads on TV, beginners, and newbies who call this the “Fear Index”.

    For those of you who have a PhD in higher mathematics from MIT, the (VIX) is simply a weighted blend of prices for a range of options on the S&P 500 index. The formula uses a kernel-smoothed estimator that takes as inputs the current market prices for all out-of-the-money calls and puts for the front month and second month expirations.

    The (VIX) is the square root of the par variance swap rate for a 30 day term initiated today. To get into the pricing of the individual options, please go look up your handy dandy and ever useful Black-Scholes equation. You will recall that this is the equation that derives from the Brownian motion of heat transference in metals. Got all that?

    For the rest of you who do not possess a PhD in higher mathematics from MIT, and maybe scored a 450 on your math SAT test, or who don’t know what an SAT test is, this is what you need to know. When the market goes up, the (VIX) goes down. When the market goes down, the (VIX) goes up. End of story. Class dismissed.

    The (VIX) is expressed in terms of the annualized movement in the S&P 500. So a (VIX) of $13 means that the market expects the index to move 3.8%, or 53 S&P 500 points up or down, over the next 30 days. You get this by calculating 13%/3.46 = 3.8%, where the square root of 12 months is 3.46. The volatility index doesn’t really care which way the stock index moves. If the S&P 500 moves more than the projected 3.8%, you make a profit on your long (VIX) positions.

    Probability statistics suggest that there is a 68% chance (one standard deviation) that the next monthly market move will stay within the 3.8% range. I am going into this detail because I always get a million questions whenever I raise this subject with volatility deprived investors.

    It gets better. Futures contracts began trading on the (VIX) in 2004, and options on the futures since 2006. Since then, these instruments have provided a vital means through which hedge funds control risk in their portfolios, thus providing the “hedge” in hedge fund.

    But wait, there’s more. Now, erase the blackboard and start all over. Why should you care? If you buy the (VIX) here at $13, you are picking up a derivative at a nice oversold level. Only prolonged, “buy and hold” bull markets see volatility stay under $20 for any appreciable amount of time. If you don’t believe that we are in such a bull market now, you should be buying (VIX) on every dip.

    A bet that euphoria doesn’t go on forever and that someday something bad will happen somewhere in the world seems like a good idea here. You would think that is a no brainer with a Fed disappointment on QE3, a fiscal cliff, and a 2013 recession on the horizon. But right now, the burden of proof is on the market as to exactly when is the right time to do that. And for the (VIX) to work well, bad things have to happen quickly, preferably by tomorrow.

    The Mad Hedge Fund Trader

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