I'm Sticking With Apple -- and I'd Buy More If I Could

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 me 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 below could cause me a lot of public embarrassment. This week, Rackspace Hosting (NYSE: RAX  ) cost me the most even if Apple (Nasdaq: AAPL  ) dominated the headlines.

Rackspace fell nearly eight percentage points in a week where Amazon.com (Nasdaq: AMZN  ) endured multiple problems in a suburban Virginia data center that also suffered downtime during a series of violent summer thunderstorms plaguing the D.C. area. Thursday night, the company reported its first loss since 2003 because of heavy investments in all lines of business. Further improvement in its Amazon Web Services cloud computing offerings could make it harder for Rackspace to win new clients.

Apple, meanwhile, reported huge gains in several areas but still came short of analyst estimates in reporting fiscal fourth-quarter earnings. Revenue grew 27.2% to $35.97 billion while profits improved 22.9% to $8.67 a share. Wall Street was hoping for $8.75 a share on $35.8 billion in revenue, according to data compiled by Yahoo! Finance.

The stock fell more than 3% in Friday morning's trading. Foolish colleague Evan Niu sees that as a buying opportunity for those who don't already own shares; I do as well. In fact, I'd buy more if Apple weren't already (by far) the largest position in our family portfolio.

Forget for a moment that the Mac maker is now selling two potential blockbuster products during the holiday quarter -- i.e., the iPhone 5 and the iPad Mini. Apple now boasts more than $120 billion in cash and investments on its books and is due to pay another $2.65 a share in dividends on Nov. 15.

What's the Big Idea this week?
Rackspace and Apple may have lost this time, but Mr. Market took an even bigger beating to fall a point back versus last week's tally. The small cap Russell 2000 dipped 0.51% while the Nasdaq fell 0.65% . Both the S&P 500, down 1.41% , and the Dow Jones Industrial Average, off 1.79% , fell more than twice as much, 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**

$609.54

44.9% 

Google (Nasdaq: GOOG  )

$650.09

$677.76

4.3% 

Rackspace Hosting

$41.65

$62.80

50.8% 

Riverbed Technology (Nasdaq: RVBD  )

$25.95

$22.82

(12.1%) 

Salesforce.com (NYSE: CRM  )

$100.93

$145.31

43.9% 

AVERAGE RETURN

--

--

26.36% 

S&P 500 SPDR

$125.83**

$141.43

12.39% 

DIFFERENCE

--

--

13.97

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

Notable newsmakers
Among the other stocks in the portfolio, Riverbed rallied even as peer F5 Networks (Nasdaq: FFIV  ) blamed troubling macroeconomic conditions for its fiscal fourth-quarter miss and poor guidance for the upcoming quarter. The stock plunged some 12% the day of the report.

Salesforce.com also fell for most of the week before rallying on Friday morning. We can thank NetSuite (NYSE: N  ) for the rally. The company, which specializes in back-end business software such as accounting and inventory delivered via the cloud, beat Wall Street estimates on both the top and bottom lines while continuing to produce huge gains in cash flow. Operating cash flow climbed 61% in the third quarter.

Finally, Microsoft (Nasdaq: MSFT  ) began selling its new Surface tablet at retail stores on Friday. Yet the early numbers say the device is already a hit. U.S. pre-orders have already sold out, while reports from the UK show surging demand there as well.

Yet all eyes remain on Apple. Will the iPad Mini and iPhone 5 help the Mac maker break new sales records in the holiday quarter? Senior technology analyst and managing bureau chief Eric Bleeker calls this one of his top three areas to watch when it comes to Apple. He's also prepared a comprehensive research report that will fill you in on what opportunities are left for Apple (and more importantly, your portfolio) going forward. Just click here now to get your copy instantly.

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 Riverbed Technology, Google, Microsoft, F5 Networks, Apple, salesforce.com, and Amazon.com and has created a synthetic short position on salesforce.com. Motley Fool newsletter services have recommended buying shares of Rackspace Hosting, Apple, salesforce.com, Google, Riverbed Technology, F5 Networks, Amazon.com, and NetSuite, as well as creating a bull call spread position in Apple and 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 (9) | Recommend This Article (3)

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 October 28, 2012, at 10:51 AM, starpp wrote:

    I will buy apple once it falls below 300. It is matter of time before tablet/phone market shaturates if already at not this point.

  • Report this Comment On October 28, 2012, at 11:00 AM, blueofblue wrote:

    fall below $300? yeah u wish! or wait until Apple split their stock so that u can afford it

  • Report this Comment On October 28, 2012, at 11:11 AM, demodave wrote:

    "The stock fell more than 3% in Friday morning's trading. Foolish colleague Evan Niu sees that as a buying opportunity for those who don't already own shares; I do as well. In fact, I'd buy more if Apple weren't already (by far) the largest position in our family portfolio."

    I am in total agreement with you here, Tim, and (willingly) suffer an imbalance in my AAPL position.

    Now that Yahoo has updated earnings to reflect AAPL FY 2012, Apple's ttm P/E ratio has fallen to 13.68. To return to a more reasonable 15, AAPL needs to move from $604 to $662 (basically a 10% "re-correction").

    I think what spooked a lot of investors was that Apple's guidance for 2013Q1 was basically flat relative to 2012Q1. Apple won't be making 30% growth YOY in 2013Q1! OK, but looking at this rationally, Apple low-balls guidance, and there are also three more quarters to FY2013. I suspect that what Apple is telling us is that Apple is aware that, even in a Holiday Quarter, there will still be a manufacturing execution learning curve in iPhone 5 and the iPad mini.

    Sure, that's disappointing as a (rabid) fan and (imbalanced) investor, but I don't think that that means that Apple won't continue to grow sales and increase in share value.

    I do wonder how ramp-up will affect business after the Holiday Quarter rolling into the Chinese New Year.

  • Report this Comment On October 29, 2012, at 9:32 PM, Omsakthi wrote:

    Have U seen the Microsoft's new Windows 8 RT powering the new Microsoft Surface PAD? They definitely are going to be Apple's Mac Air Killer & the Apple iPad killer. I guess most of the Enterprise decision makers will choose these two Microsoft products as their preferred global standards for their global operations. Sorry Apple. Your glory was only short lived. Thanks to Bill Gates.

  • Report this Comment On November 01, 2012, at 9:12 PM, TMFMileHigh wrote:

    @Omsakthi,

    I get it. You like Microsoft. Awesome. But:

    >>Sorry Apple. Your glory was only short lived. Thanks to Bill Gates.

    Really? Are you The Doctor, using your TARDIS to somehow change history? Because unless you are, I think we already know the odds of anyone making Apple irrelevant very soon (if ever) are beyond calculable.

    Thanks for writing 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 November 01, 2012, at 9:33 PM, TruffelPig wrote:

    AAPL is still cheap at $700 or $800. I bought AAPL at 350, 400, 450, 520, and a while ago at 640. I bought at 380 for my son. I am pretty overweight but being overweight such a company I do not feel bad.

    The review for the MSFT tablet are very mixed. Haven't held one myself though but still like my IPAD II. MSFT as a stock hasn't really appealed to me because it is stagnating more or less. You can get better dividends buying other stagnating companies.

  • Report this Comment On November 01, 2012, at 9:36 PM, TruffelPig wrote:

    To the author: RVBD got a -23% score yesterday due to the acquisition. I saw this as buying opportunity and got shares and also sold some puts :). RVBD will be back up soon.

  • Report this Comment On November 01, 2012, at 9:42 PM, Mathman6577 wrote:

    Apple needs to overcome a negative bias and the reporting in the financial media and blogosphere before it moves up.

  • Report this Comment On November 02, 2012, at 8:14 AM, TMFMileHigh wrote:

    @Mathman6577,

    >>Apple needs to overcome a negative bias and the reporting in the financial media and blogosphere before it moves up.

    Sorry, I'm just not buying it. Apple taking deserved criticism doesn't equal a negative bias any more than awestruck praise (also deserved) amounted to a positive bias in years past.

    Thanks for writing and Foolish best,

    Tim

    --

    Tim Beyers

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

    Web: http://timbeyers.me

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