Our Top 5 Tech Stocks Crushed the Market

Last December, Motley Fool writers chose their Top 5 Tech Stocks for 2010. The recommendations shared one theme: platforms.

As Tim Beyers wrote, "Great tech stocks are all the same. They generate high returns because they're platforms, generating support not only from their users, but also an entire ecosystem of partners and developers."

Each of the stocks picked had key platforms their success is based on:

  • Akamai (Nasdaq: AKAM  ) is the world's leading content delivery network with more than 73,000 servers to make all aspects of customers' web pages load quickly. This may not sound like much, but a study by Google (Nasdaq: GOOG  ) showed that a half-second decrease in its load time results in a 1.2% loss of revenue per user, with hundreds of millions of users that adds up.
  • Apple (Nasdaq: AAPL  ) has the Mac, iPhone, iPod, iPad and app and music stores to service them all.
  • Google (Nasdaq: GOOG  ) has the world's most popular search engine coupled with the world's best advertising machine. With the cash to gobble up any start-up to fill new niches Google is the dominant Internet business.
  • SanDisk (Nasdaq: SNDK  ) makes memory chips, most notably solid state drives, as smartphones require more memory SanDisk will be there to satiate them.
  • Tibco Software (Nasdaq: TIBX  ) is a key component of the cloud data industry. They run software that connects divergent applications into one cohesive IT network that works.

You're probably wondering though just how well . Here's the return's of the great stocks our writer's singled out for 2010:

Pick

Original Rec

Performance

Outperformance vs. S&P 500

Stock Picker

Akamai Rec 115.1% +102.6% Tim Beyers
Apple Rec 66.7% +54.2% Rick Aristotle Munarriz
Google Rec (0.5%) (13%) Rick Aristotle Munarriz
SanDisk Rec 94.5% +82% Eric Jhonsa
TIBCO Software Rec 135.6% +123.1% Anders Bylund
Average   82.3% +69.8% Motley Fool Writers

Source: Yahoo! Finance. *S&P 500 returned 12.5% from Dec. 17, 2009, to Dec. 10, 2010.

Congrats to our writers for slaughtering the market! Even when compared to the tech-heavy Nasdaq-100, a common benchmark for tech funds -- which returned 23.8% -- our picks better than doubled it. So what about 2011? The theme of investing in platforms still holds true.

Why invest in platforms?
Warren Buffett likes to talk about moats, the competitive wall a company has built up over time to defend itself from competitors. Platforms matter because they make for some of the deepest moats out there.

An example is your local electric company; it has power lines connected to your house and all your neighbors' houses. If you want electricity, you have to buy it from them. It would be nearly impossible for a competitor to come in and take your business away from them. It has you as a guaranteed customer as long as you live there, and is thus regulated like all get out.

Companies strive to have you locked in as a customer for life because it's wildly profitable for them. But they try to avoid the regulation part: Just ask Microsoft; that's why when a company's platform is challenged, it will defend it like mad.

So what's new in platforms ...
Tons.

  • Tech startups Twitter, Facebook, and Groupon have created thriving ecosystems for others to innovate on which competitors are beginning to salivate over.
  • E-readers have begun really catching on with Amazon's Kindle coming down in price and Apple's iPad taking off. There's now even talk of disposable e-readers coming in the future.
  • Netflix (Nasdaq: NFLX  ) is doing big things with its online offerings, expanding its digital library and adding subscribers.
  • Baidu (Nasdaq: BIDU  ) has taken more market share from Google since the latter decided to leave the Chinese mainland. Its dominance over the Chinese search market looks unbeatable.

The coming year
If you are looking to invest in tech, platforms are the way to go. Just remember to be on the lookout for new platforms and you might just have the next best tech stock.

If you want Our Top 5 Tech Stocks for 2011, check back on Fool.com this Tuesday, Dec. 14 at 11 a.m., when we announce our five picks for the new year.

Can't wait for some picks? Click here to access the Fool's free special report, "The Only Stock You Need to Profit From the NEW Technology Revolution."

Dan Dzombak recommends you read I Will Tell You How to Become Rich. He does not own shares in any of the companies mentioned. His musings and articles he finds interesting can be found on his Twitter account: @DanDzombak.

Google and Microsoft are Motley Fool Inside Value picks. Akamai Technologies, Baidu, and Google are Motley Fool Rule Breakers choices. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (36)

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 December 10, 2010, at 3:47 PM, TMFDiogenes wrote:

    geez, nice job guys!

  • Report this Comment On December 10, 2010, at 3:59 PM, HectorLemans wrote:

    Just think how well you'd have done if you'd chosen Netflix

  • Report this Comment On December 12, 2010, at 1:18 PM, PeyDaFool wrote:

    I could scroll through my CAPS page and pick out all the winners, average my winning pick scores and proudly post it as well.

    Don't you think you're patting these guys on the back for unfair reasons? Are you going to do a post this week about their picks that turned sour, too?

  • Report this Comment On December 12, 2010, at 2:41 PM, TMFMileHigh wrote:

    @PayDaFool,

    >>Are you going to do a post this week about their picks that turned sour, too?

    That's a good idea. I'll make some time to go back through some of my bigger duds. We all have picks we wish we could take back.

    But to be fair to Dan, he wasn't writing about our picks generally. He was writing about a specific series of selections we made. No cherry picking in this case.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On December 12, 2010, at 3:39 PM, TMFDanDzombak wrote:

    @HectorLemans True

  • Report this Comment On December 12, 2010, at 3:39 PM, TMFDanDzombak wrote:

    @PeyDaFool Echoing Tim's comment, this wasn't cherry picking

  • Report this Comment On December 13, 2010, at 12:49 PM, PeyDaFool wrote:

    How, exactly, is this not cherry picking?

    Anders did very well to recommend TIBX prior to it making a bullish 135% run, but he also recommended to sell AAPL and take all the profits off the table when it was trading near $200.

    How can you take the best of the best picks while turning a blind eye to the bad picks and not call this cherry picking?

  • Report this Comment On December 13, 2010, at 2:15 PM, zbouck wrote:

    I believe the title should read: Our Top 5 Tech Stocks Crushed the Market: NANNY NANNY NOONERS!

  • Report this Comment On December 13, 2010, at 3:33 PM, TMFRhino wrote:

    It was a specific series:

    http://www.fool.com/investing/general/2009/12/17/whats-the-b...

    Each stock had a write up explaining why the writer thought it was the best tech stock for next year. It's not cherry picking, because it's calling out a specific series and showing the results.

  • Report this Comment On December 13, 2010, at 5:39 PM, TMFDanDzombak wrote:

    @zbouck I don't get it

  • Report this Comment On December 15, 2010, at 11:38 AM, PeyDaFool wrote:

    Tim and Dan,

    You're right: I didn't notice this post was part of a series. With that piece of information, it does make your Fool returns quite impressive.

    Keep up the good work.

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