The Stupid Mistake That Torched My Tech Portfolio This Week

Each week, I report the results of the Big Idea Portfolio, a collection of five tech stocks that I believe will crush the market over a three-year period. I've done it before; my last tussle with Mr. Market ended with my beating the index's average return by 13.35%.

Real money was on the line then as it is now, which means any one of the five stocks you see here could cause me a lot of public embarrassment. This week, Google (Nasdaq: GOOG  ) cost me the most.

The search king fumbled when it prematurely released earnings during a press event meant to announce a new $249 Chromebook. But the gaffe itself paled next to the numbers it revealed to the world. Google badly missed earnings estimates thanks to ongoing losses at its Motorola Mobility unit and a rising cost per click (CPC) in its core ad business. A greater mix of mobile ads appears to be contributing to the downdraft.

Adjusted earnings fell  to $9.03 from $9.72 in last year's Q3 even as revenue climbed 45% year over year, to $14.10 billion. Analysts were expecting $14.69 billion and $10.69 per share, respectively, according to a survey of 20 analysts conducted by S&P Capital IQ. The stock fell more than 8% in the immediate aftermath of the report.

Facebook (Nasdaq: FB  ) also gave up hard-fought gains on the theory that weakness in advertising is, well, weakness in advertising. The social network remains off 50% from its May IPO debut and reports third-quarter earnings Tuesday after the bell. Analysts expect $0.11 in non-GAAP profits on $1.23 billion in revenue, according to data supplied by Yahoo! Finance.

What's the Big Idea this week?
Facebook and Google may have lost this time, but Mr. Market won, picking up 5.5 percentage points over last week's results thanks to a marketwide rally. The S&P 500 led all indexes with a 2.01% gain, followed by the small-cap Russell 2000, which rose 1.70% , and the Dow Jones Industrial Average, which added 1.65% . Google and Apple (Nasdaq: AAPL  ) held back the Nasdaq, which still managed to grow 0.94% , according to data supplied by The Wall Street Journal. Here's a closer look at where I stood through Thursday's close:

Company

Starting Price*

Recent Price

Total Return

Apple

$420.59**

$632.64

50.4% 

Google

$650.09

$695.00

6.9% 

Rackspace Hosting (NYSE: RAX  )

$41.65

$66.01

58.5% 

Riverbed Technology (Nasdaq: RVBD  )

$25.95

$20.69

(20.3%) 

Salesforce.com (NYSE: CRM  )

$100.93

$150.10

48.7% 

AVERAGE RETURN

--

--

28.84% 

S&P 500 SPDR

$125.83**

$145.82

15.89% 

DIFFERENCE

--

--

12.95 

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

Notable newsmakers
Interestingly, these numbers look weaker than they really are. I didn't get the benefit of Friday's 11% rally in Riverbed's shares. Investors piled in after the company reported better-than-expected Q3 earnings and strong fourth-quarter guidance.

Revenue improved 15% to $218.6 million, while adjusted earnings climbed 17% to $0.28 per share. Analysts had been calling for $216.7 million and $0.25, respectively, according data supplied by S&P Capital IQ. The beat marks Riverbed's third consecutive win versus Wall Street's consensus.

Microsoft (Nasdaq: MSFT  ) wasn't nearly so fortunate. A lack of Windows 8 machines put a damper on fiscal Q1 results, which missed targets. Revenue fell 8% as profits plummeted 22%. The good news? Pre-sales of Windows 8, which arrives next week, have already brought in more than $1.36 billion in revenue. Mr. Softy will recognize all that and perhaps quite a bit more when it reports second-quarter results three months from now.

Finally, Apple took yet another beating on Friday -- falling more than 3% on general weakness in the tech sector. At $609.84, the stock now trades at lows not seen since early August . And that's in spite of new estimates that say the iPad will once again outsell the entire domestic PC industry. Tablet sales should make for a healthy source of profits when Apple reports fiscal Q4 earnings next Thursday afternoon.

But is the stock still a buy? Senior technology analyst and managing bureau chief Eric Bleeker is prepared to fill you in on what opportunities are left for Apple (and, more importantly, your portfolio) going forward. Just click here now to get instant access to his research.

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, Rackspace Hosting, Riverbed Technology, and salesforce.com at the time of publication. 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 Google, Facebook, Riverbed Technology, Microsoft, salesforce.com, and Apple, has created a synthetic short position on salesforce.com, and has bought calls on Facebook. Motley Fool newsletter services have recommended buying shares of salesforce.com, Facebook, Riverbed Technology, Rackspace Hosting, Apple, and Google, creating a bull call spread position in Apple, and creating a synthetic covered call position in Microsoft. We Fools don't 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. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (2)

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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 October 21, 2012, at 4:54 PM, bsimpsen wrote:

    I think you meant to say that cost per click is -falling- due to the decreased effectiveness of mobile ads. I don't think Google's cost to deliver ads is changing. That is near zero.

  • Report this Comment On October 21, 2012, at 5:04 PM, txwonk wrote:

    I think you are correct that the stocks will rise back up and probably quickly. Apple will likely have good news. There is supposed to be another orieuct announcement that will help folks feel optimistic. Hedge funds needing to make up their quota will do so in both directions. So next round is up! Good to be prepared for that.

  • Report this Comment On October 21, 2012, at 6:18 PM, thethreestooges wrote:

    This is the best week I ever had. I fell out of my chair when pumpers said Goog will jump to 800, 900, 1000. And there are others who threaten us with "don't bet against Goog" Why? because they are dumping and they don't want you to dump ahead of them! So, I sold all my Goog and went short big time. Now, I am getting my sun tan and sipping my Corona. HAHAHA

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