How This Big Win Became a Loss for My Tech Portfolio

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, Google (Nasdaq: GOOG  ) turned negative for the first time in months. I'm at a loss to understand why.

Maybe demand has something to do with it? According to its devices feed at Google+, the Nexus 4 smartphone sold out within minutes in most territories. The Nexus 7 shows as still available but the high-end version of the Nexus 10 -- which competes with the top-of-the-line iPad -- still shows as "sold out." Usually it's Apple (Nasdaq: AAPL  ) reporting this sort of opening-week frenzy.

And that should be good for Google. Trouble is, with devices selling out so fast, the search king and Nexus 4 partner LG seem to have failed at properly anticipating inventory. Profits that were there for the taking may be headed elsewhere.

On the bright side, a strong showing by the Nexus 10 tablet offers even more evidence that analysts at the Consumer Electronics Association were lowballing when they predicted just 32 million tablets sold in the holiday quarter. Steep discounting by Amazon.com (Nasdaq: AMZN  ) for its existing Kindle Fire tabs could also add to the total.

What's the Big Idea this week?
So far, what "could be" isn't playing well with investors who seem determined to take profits till a rally convinces them to do otherwise. The resulting tech sell-off put me a shade behind Mr. Market for the third consecutive week in our battle for stock-picking supremacy.

But that also isn't saying much: All four of the major indexes declined this week. The Dow dropped 2.13% while the tech-heavy Nasdaq fell 2.34% and the S&P 500 declined 1.92%. The small-cap Russell 2000 led the losers with a 3.12% drop, 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

$418.68**

$525.62

25.5% 

Google

$650.09

$647.26

(0.4%) 

Rackspace Hosting (NYSE: RAX  )

$41.65

$60.85

46.1% 

Riverbed Technology (Nasdaq: RVBD  )

$25.95

$16.96

(34.6%) 

Salesforce.com (NYSE: CRM  )

$100.93

$140.73

39.4% 

AVERAGE RETURN

--

--

15.20%

S&P 500 SPDR

$125.83**

$135.70

7.84% 

DIFFERENCE

--

--

7.36%

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

Notable newsmakers
None of the other stocks in my portfolio reported major news this week, though Rackspace and Riverbed continued to suffer at the hands of skeptics despite signs of continued growth. LinkedIn (NYSE: LNKD  ) suffered a similar fate when Facebook (Nasdaq: FB  ) revealed a new jobs app this week.

In earnings news, Cisco Systems (Nasdaq: CSCO  ) reported better-than-expected results and announced plans to help telecom carriers expand their high-speed wireless voice and data networks. The stock moved up as much as 7% following the favorable report, yet there remain good reasons to buy at current levels. Notably, a cheap valuation and a pressing need for infrastructure to support the coming spike in Internet traffic.

IDC pegs total spending on cloud computing services is on track to grow 18.5% annually to $43 billion by 2016. Few are investing as heavily in the cloud as Amazon, which this week announced a new data center in Sydney, Australia. Chief Technology Officer Werner Vogels broke the news on his blog, writing that there is "tremendous interest" in Amazon Web Services in the Asia-Pacific marketplace.

Will interest lead to income and higher returns? Neither Vogels nor anyone else can say for sure, which is why it's not surprising to see investors staying cautious. After all, there's a lot more than AWS to consider before buying shares of Amazon.

Our brand-new special report has the rest of the story. Get it now and you'll learn what's really driving the company's growth, and whether now is the time to buy. You also get a full year of free updates when the story changes -- just click here now to get started.


Read/Post Comments (5) | 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 November 17, 2012, at 2:41 PM, HiramWalker wrote:

    How should big nexus sales bump Google's value? Aren't margins very low anyways?

    If they are making good margins, perhaps the market shares my impression that little money is being made on nexus?

  • Report this Comment On November 17, 2012, at 3:03 PM, chastenruin wrote:

    GOOG's entire bag of eggs is advertising. And it's on the downswing as we saw last quarter. Nexus sales arent enough to drive the valuation of Google because its built around advertising and not hardware sales. Their burn rate is also insane. They bought a hardware manufacturer for $12B dollars and have no idea how to run it. Dont expect Apple-level profits from a bunch of ADD software engineers that get off buying Russian jet planes during lunch.

    AAPL is getting manipulated by large institutional investing having a short sale orgy. This is their strongest quarter of the year, they have new products that are selling out, and its still not even Christmas yet. They will bounce back, just grit your teeth and keep adding to your position.

    If you are in AMZN, get out. It's not that they are a bad company, or that its a bad stock. It's just way too overweight at this moment and given whats happening to both GOOG and APPL, if you dont have a large gain on it, its best to take the profit before a sizable correction.

  • Report this Comment On November 17, 2012, at 8:46 PM, Landola wrote:

    As far as I know, the Nexus 4 launch is a mess. Many orders became "back-ordered" and customers are not happy about it, because when they placed the orders, the Google Play website clearly said Nexus 4 was "in stock".

    Moreover, when contacting the customer service, the customers received contradicted answer regarding their order status from different CSRs.

  • Report this Comment On November 17, 2012, at 9:15 PM, H3D wrote:

    They'll be even less happy when they get the Nexus 7

  • Report this Comment On November 17, 2012, at 9:18 PM, H3D wrote:

    And a lot of Nexus 10 will be going back.

    Wonder if returns will exceed sales.

    Google/Logitech did manage that with the 1st gen Google TV.

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