My Tech Portfolio Will Crush the Market

Welcome to week 2 of my stock-picking throwdown with Mr. Market. Let's get right to the numbers:

Company

Starting Price

Recent Price

Total Return

Akamai (Nasdaq: AKAM  )

$22.23

$23.53

5.8%

Harris & Harris (Nasdaq: TINY  )

$6.22

$7.20

15.8%

IBM (NYSE: IBM  )

$129.05

$126.94

(1.6%)

Oracle (Nasdaq: ORCL  )

$22.75

$23.19

1.9%

Taiwan Semiconductor (NYSE: TSM  )

$10.34

$10.49

1.5%

AVERAGE RETURN

--

--

4.68%

S&P 500 SPDR (AMEX: SPY  )

$126.73

$129.54

2.22%

DIFFERENCE

--

--

2.46*

Source: Yahoo! Finance as of 8/14/2008.*Percentage points. 

Not a bad start. But, in investing, short-term results may as well be meaningless. Durable gains are what matter -- like when David Gardner produced a decade of 20% returns by buying and holding the likes of Amazon and eBay in the real-money Rule Breaker portfolio, or when Tom Gardner selected a "simpleton portfolio" to hold for a decade, with market-crushing results.

I'm taking this challenge because I believe that, over the next three years, top tech stocks will prove to be significant outperformers. Yet I've more than bragging rights at stake here; I own each of the five stocks you see above. Combined, they account for more than 25% of my portfolio's current value.

This week's checkup
Even so, in the quest for long-term returns, sensible investing demands a watchful eye on the companies we commit capital to. It's with that spirit that we'll check in regularly with my top techies. This week's update:

Akamai is facing more competition each week, it seems. Funding for content delivery network challengers such as BitGravity has reached $300 million over the past 12 months, reports industry watcher Dan Rayburn in this blog post. Trouble is, large customers continue to bet on Akamai, and even those that aren't appear to be choosing either Limelight or Level 3 Networks (Nasdaq: LVLT  ) over the upstarts.

Harris & Harris issued new stock options grants this week, 1.16 million in all. The good news? Most of these grants vest over four years and, with 25.86 million shares outstanding, total dilution is just more than 4% -- not bad for a stock that should at least double from current levels. The bad? CEO Charles Harris will see all 187,039 options granted him vest as of Dec. 31. Longer vesting schedules encourage longer-term value creation.

IBM is one of my three tech stocks to buy now because it's unreasonably cheap. But it got cheaper this week for reasons that are not immediately clear. Write to me here if I missed something.

Oracle disclosed that it spent $1.3 million lobbying on various legislative issues during the second quarter. Among CEO Larry Ellison's hot-button issues: H1-B visas for skilled engineers from foreign lands. This isn't surprising; Silicon Valley has a history of attracting overseas talent, especially when it comes to software developers.

Taiwan Semiconductor said it would buy back up to $529 million in stock between now and Oct. 12. Repurchased shares are to be canceled, offsetting the effects of what the company calls "employee profit-sharing." So be it. My estimates say the stock is undervalued. Assuming dilution isn't too extreme, a buyback at these levels could create value.

There's your checkup. See you back here next week for more tech stock talk.

Get your clicks with related Foolishness:

Amazon and eBay are Stock Advisor selections. Akamai and Harris & Harris are Rule Breakers recommendations. Try either of these market-beating services free for 30 days. There's no obligation to subscribe.

Fool.com contributor Tim Beyers, who is ranked 18,698 out of more than 115,000 participants in CAPS, also writes for Rule Breakers. Get access to all of his writings here, or enjoy a daily dose of his Foolishness via this feed for your RSS reader.

Tim owned shares of Akamai, Harris & Harris, IBM, Oracle, and Taiwan Semiconductor at the time of publication. The Motley Fool owns shares of S&P 500 depository receipts and has a tech-tastic disclosure policy.


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