These Tech Stocks Will Make Me Rich

Welcome to week 148 of my stock-picking throwdown with Mr. Market. Let's get right to the numbers.

Company

Starting Price*

Recent Price

Total Return

Akamai $22.23 $29.25 31.6%
Harris & Harris $6.22 $5.07 (18.5%)
IBM $122.42** $165.07 34.8%
Oracle (Nasdaq: ORCL  ) $22.33** $31.14 39.5%
Taiwan Semiconductor $9.35** $12.40 32.6%
AVERAGE RETURN -- -- 24.00%
S&P 500 SPDR $119.45** $126.81 6.16%
DIFFERENCE -- -- 17.84

Source: Yahoo! Finance.
*Tracking began on Aug. 7, 2008.
**Adjusted for dividends and other returns of capital.

Sigh. I'm beginning to feel like a dated but still awesome Genesis song. This time, my tech portfolio gave away 34 basis points in our three-year contest to see who can deliver the most value to investors. Since the beginning of the year, Mr. Market has cut my lead by more than 14 percentage points.

Turbulent indexes aren't helping. Last week's rally turned south as both the Dow, down 0.58%, and the S&P 500, off 0.24%, fell for the seventh time in eight weeks. Yet a bad climate for large caps proved to be perfectly temperate for techs and small caps as the Nasdaq rallied 1.39% and the Russell 2000 gained 2.05%, CNBC reports. 

Ongoing volatility is fueling fear in the markets. The CBOE Volatility Index ended the week down 3% but at 21.15 is up more than 19% for the quarter and year to date. The rise suggests fear of a significant pullback in stock prices. Trouble is, you won't find justification for the paranoia in the latest earnings data.

As my Foolish colleague Morgan Housel reports, the S&P is trading for roughly 13 times forward earnings. And while profit margins have reached historical highs and overall earnings are near record levels when compared with GDP -- both signs of unsustainable market highs -- permanent productivity gains could be responsible for the gains.

What's more, significant portions of the U.S. population are earning about as much income as ever. This isn't The Great Depression 2.0 that we're living through. Just look at balance sheets. Flush corporations have spent billions bidding for smaller rivals, leading to big gains for investors in the acquired. 

Except for this week.

This time, speculators drove gains as the back-and-forth between Harbin Electric (Nasdaq: HRBN  ) and short-sale specialist Citron Research reached a head. On Monday, the company announced a merger agreement in which its chairman and private-equity investor Abax Global would acquire all outstanding stock for $24 a share. Harbin soared 78% on the news yet at $14.95 a share still trades more than 60% below the proposed buyout price.

The week in tech
In Silicon Valley, the IPO hit parade finally took a breather along with shares of Pandora Media (NYSE: P  ) . Shares of the would-be online audio streaming overlord are down more than 23% since last week's opening price. Sirius XM Radio (Nasdaq: SIRI  ) has rallied slightly over the same period and could see further gains in the weeks ahead on the strength of a JANCO Partners upgrade. (Check out a Foolish debate on Sirius XM 2.0's impact.)

Yet for all the improving options in streamed audio, streamed video is having a tough time going portable. Hulu this week released new versions of Hulu Plus for six Android phones, while the Samsung Galaxy and Motorola Mobility's (NYSE: MMI  ) Xoom tablets remain unsupported by Hulu and Netflix (Nasdaq: NFLX  ) . Were this a playground, we'd have no choice but to wonder whether the Honeycomb version of the Android OS has cooties.

Investors seeking better tech ideas might check in with three Big Themes I'm betting on now, and avoid shares of Cisco (Nasdaq: CSCO  ) . The networker looks cheap on the surface, but its big bank account may be deceiving.

This is why David Gardner tends to look for businesses breaking new ground. He produced a decade of 20% returns in the real-money Rule Breaker portfolio by betting on innovators and then holding them for the long term. Tom Gardner's "simpleton portfolio" was also a 10-year winner. I believe that, with my tech portfolio, I will achieve similar success.

Checkup time!
Now let's move on to the rest of today's update.

  • Oracle disappointed investors this week, when it reported a 6% decline in fourth-quarter sales of its Exabyte and Exalogic systems. Yet the report also wasn't as bad as a 4% selloff made it seem. Both revenue and adjusted earnings came in above analyst targets as sales from new licenses jumped 19%. Cash from operations soared 29% year over year. Whatever short-term hardware issues Oracle suffers from, the company remains the world's leading supplier of database software.

There's your checkup. See you back here next weekend for more tech-stock talk. In the meantime, don't forget to keep up with my tech portfolio by adding these stocks to your watchlist today:

Fool contributor Tim Beyers is a member of the market-beating Motley Fool Rule Breakers stock-picking team and owned shares of Akamai, Harris & Harris, IBM, Oracle, and Taiwan Semiconductor at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Oracle and Cisco and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Netflix and Cisco and buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (5) | Recommend This Article (5)

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 June 26, 2011, at 6:43 PM, tburrow50 wrote:

    before you jump on the badmouthing-cisco-bandwagon, read the comments on the article you cited.

  • Report this Comment On June 26, 2011, at 6:59 PM, TMFRhino wrote:

    Hey tburrow50,

    What exactly in the comments should he read? Its well known that Cisco can safely use the dividends abroad or make overseas acquisitions (or potentially with enough legal wrangling, could make a play at domestic acquisitions), the point of the article was simply netting out their cash ignores tax consequences and if they do go the acquisition route- you need to factor that into their cash flows.

    Best,

    Eric

  • Report this Comment On June 26, 2011, at 8:07 PM, tburrow50 wrote:

    I realize you've already aknowledged the fact that the analysis is (very) oversimplified, and I also saw that you (like me) have a long position in cisco. But I think you're being too harsh; you're highlighting the worst case scenario. As dallas already said, there are plenty of ways that cisco can use this overseas cash without paying taxes.

  • Report this Comment On June 26, 2011, at 11:35 PM, TMFRhino wrote:

    tburrow,

    Fair enough. You might say (very oversimplified), but I'd say simply netting cash is equally oversimplified. Economic reality lays somewhere in between. As I said in the other article, I'd love to follow up with more information on what they could do with their cash hoard, the article was already running a bit long as is, so I'll have to post it sometime later next week.

    -Eric

  • Report this Comment On June 27, 2011, at 12:25 PM, tburrow50 wrote:

    You are right, they're both wrong. But I would be willing to bet that Cisco is well aware of tax laws, and they'll do everything they can to avoid the 35% tax you used in your model. On the scale between zero tax and your worst case scenario, I would say that they'll likely be much closer to the zero side.

    I'm not pretending to be an expert, I'm sure you know more about this than I do. Another article would probably be helpful for all of us. Thanks for writing

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