My Top 2 Stocks: Amazon and Google

One Fool reveals why he's put over 20% of his money on just two companies.

Brian Stoffel
Brian Stoffel
Mar 11, 2013 at 6:30PM
Technology and Telecom

The beginning of my investing experience is somewhat of a blur. Being an English major in college and a writing teacher by profession, I didn't have much experience with finance, let alone stocks, at all. When I finally got interested -- after finding the Fool to help me invest my retirement funds -- my method was pretty haphazard.

It wasn't until the Spring of 2010 that I finally started to realize the importance of developing an investment philosophy. After spending a lot of time reading about it, I decided that it would be best to have a concentrated portfolio with stocks that 1. displayed innovation, and 2. had huge sustainable advantages over the competition.

After diving through all the possibilities, I was able to make some bets I was confident in. As it stands now, my two top holdings in absolute dollars are prime examples of businesses with wide moats and innovative employees. Those two companies are Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL).

Netflix was actually a guide
While studying about sustainable competitive advantages, I remembered reading about how Netflix (NASDAQ:NFLX) was able to fend off Wal-Mart (NYSE:WMT) when the latter wanted a piece of the DVD-to-consumer business.

In a story that's not told too often, Netflix had a huge tactical advantage over Wal-Mart: the company had strategically placed its fulfillment centers within a stone's throw of local U.S. Postal Service offices. Though that might seem like a small thing, the Wal-Mart's DVD distribution centers were far fewer, and the turnaround time -- as well as some special treatment for Netflix by the USPS -- made a big difference in user experience.

Obviously, when streaming became the new paradigm, that changed things a bit for Netflix. But it got me thinking about the huge infrastructure that Amazon has. Currently, only about 10% of all purchases are made online in America. Though that number will never reach 100%, it shows how much room there is for growth.

As e-commerce becomes more commonplace, customer service will be a key differentiator in deciding who wins the most customers. Currently, Amazon and its subsidiaries currently have over 69 fulfillment centers in the world, and the company has started locating them near urban centers. This insures that when Amazon customers hit "Buy," they'll be getting their products delivered to their doors faster than with anyone else.

When you consider the astronomical price the company is paying to build, staff, and automate these centers, you get an idea for how it would be nearly impossible for a competitor to come in and offer better customer service. Throw in the innovation factor -- remember, the company invented the e-reader -- you've got a recipe for success.

Currently, Amazon comprises 12.2% of all my real-life stock holdings, and is beating the market by a healthy 30%. Though I think every investor should own a piece of Amazon, I would suggest buying in stages, as today's prices are quite high by most standard metrics.

Where's the competition?
Things get a little more complicated when it comes to my second-largest holding: Google. Obviously, the most important thing to understand about the company is that it makes 87% of its money from online advertisements.

Companies are willing to pay so much for advertising with Google because the company holds the most oft-visited website and search engine in the world, and it knows a lot about its users, enabling it to tailor advertisements to meet the eyes of the right people.

That's an enormous advantage to have, but CEO Larry Page won't let Google rest on its search laurels. It continues to build this moat out through innovation -- whether it be Gmail, YouTube, cloud-based offerings, or the Android mobile operating system.

The bottom line remains: Google offers products that help us organize both our lives aind substantial amounts of information. Because it does that, many of us use its products, and Google is able to collect data about all of us, in turn making it an even more formidable advertising machine.

The company now comprises 10% of my real-life stock holdings, as it has appreciated and beaten the market by 27% over the time I've owned shares. Though it's gone on a run lately, I still think buying shares of Google is a great bet right now for a long-term investor.

What about our CEO?
Now that you know what my two top holdings are, I invite you to take a look at what our CEO and co-founder, Tom Gardner, has been up to. Last year, he sold all of his stocks, and he's committed to holding anything he buys from here on out for at least five years.

For a limited time, he's letting anyone see what his top two holdings are. My guess is that they'll surprise you -- but then again, his portfolio is already beating the market, having returned over 25%. Go ahead and take a look today for free!