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An improving economy can only get better if we invest in innovation, the president said Saturday in his weekly radio and Internet address.

"Innovation has been essential to our prosperity in the past, and it will be essential to our prosperity in the future," Obama said. Loosely translated, the president wants Americans to birth more Big Ideas. He wants the Next Big Thing to be born under his administration's watch.

There's good reason to cheer Obama's thinking on this point. America is shipping less technology abroad, defusing a once-explosive source of economic growth. Total shipments fell 3% to $214 billion in 2007, the latest year such statistics were compiled. (That's according to the AeA, a trade association composed of electronics goods manufacturers.)

Here's why that stinks: High tech accounts for 18% of all U.S. exports, more than any other industry, by the AeA's reckoning. Obama is right to be concerned. America's competitive advantage -- tech -- appears to be fading.

Yes sir, Mr. CIO-in-Chief
To be fair, President Obama also uses "innovation" as a code word to elevate rhetoric in the health-care debate, and to communicate his desire for revitalization in small towns dependent on 20th-century industries, such as industrial goods and automobile manufacturing.

But no one should doubt the president's commitment to technology. He still argues for research and development assistance -- an area in which the U.S. has lagged emerging economies in the past. He's also hired the nation's first Chief Information Officer, Vivek Kundra.

Which company is likeliest to produce the innovation of which the president speaks? Let's begin by looking at the world's 10 biggest spenders on research and development. Five of them are based here in the U.S.:


R&D Expense (in millions)*

Toyota (NYSE: TM  )


Microsoft (Nasdaq: MSFT  )




Pfizer (NYSE: PFE  )


Ford (NYSE: F  )


Novartis AG


Johnson & Johnson (NYSE: JNJ  )




Sanofi-Aventis (NYSE: SNY  )




Source: Capital IQ, a division of Standard & Poor's. Data current as of Aug. 3, 2009. Filters companies listed on US Stock Exchanges including ADR's.
*Over the last 12 months.

Microsoft is an obvious choice, because it's the biggest maker of PC software in the world, and Southeast Asia is bringing PC users online at astounding rates. But of the U.S.-based candidates on this list, I still like IBM best. Here's why.

1. The world needs tech, and IBM is already global
Lots of companies claim to be global. Few truly are. IBM, with more than 400,000 employees worldwide, is one of those companies. Big Blue is a huge supplier of software and services in India, for example. Close to 65% of IBM's 2008 revenue was generated from foreign accounts, Capital IQ reports.

IBM also has roots in China via its relationship with PC maker Lenovo. That could prove extremely important if Chinese Vice Premier Wang Qishan is right, and the Obama administration is preparing to relax restrictions on U.S. high-tech exports to China. (Wang could be posturing for political purposes.)

2. IBM is already the world's most prolific innovator
If patents are the best measure of innovative prowess, no one -- and I mean no one -- comes close to IBM. In 2008, Big Blue became the first company in history to register more than 4,000 patents in a year. (4,186 total.) South Korea's Samsung was second, followed by Japan's Canon, and Microsoft. Notably, Mr. Softy produced less than half the number of patents IBM did.

3. IBM blends services and technology like no other firm
More impressively, IBM builds custom, profitable businesses around its breakthroughs. Already, its arsenal includes services for greening technology infrastructures and improving water conservation.

This is the IBM of the future, but it's probably also just the beginning. Consider its recent purchase of SPSS, a supplier of what's known as predictive analytics software. Consultants could handicap what-if scenarios for clients facing big business problems, then design multiyear engagements based on the results -- fitting for a company that once hinted at renting access to its considerable R&D machine.

The U.S. economy needs more mojo. It needs growth. It needs an edge. Tech in its varying forms has supplied all this and more in the past. President Obama is betting real money that it will again.

And few are in better position to profit from that bet than IBM.

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Microsoft, Nokia, and Pfizer are Inside Value picks. Johnson & Johnson is an Income Investor recommendation. Novartis is a Global Gains pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy asks that you consider yourself disclosed.

Read/Post Comments (2) | Recommend This Article (13)

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 August 04, 2009, at 3:49 PM, Desicon wrote:

    I agree with the selection of IBM. I also think among the list IBM is the most innovative.

    Regarding pharmas the innovation is going to be around cost management. They will become like PG, focused on brand management and low cost manufacturing (most likely from outsourced vendor). They are gearing for competing with generics. The applicable investment model is similar to utilities.

  • Report this Comment On August 04, 2009, at 5:41 PM, dbbfool63 wrote:

    I thought the Article was suppose to read

    " Does the President Want You to Bet on This Stock?

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