Each week, I report the results of the Big Idea Portfolio, a collection of five tech stocks that I believe will crush the market over a three-year period. I’ve done it before; my last tussle with Mr. Market ended with my beating the index’s average return by 13.35%.
Real money was on the line then as it is now, which means any one of the five stocks you see below could cause me a lot of public embarrassment. This time, both Apple Inc. (NASDAQ:AAPL) and Rackspace Hosting, Inc. (NYSE:RAX) cost me.
Apple has been falling for what seems like months now, and as a consequence it now ranks as one of the cheapest stocks investors can buy. Why aren’t they buying? Recent security breaches may have something to do with it. Emboldened competition could also be to blame. Either way, investors are no longer sure if the iPhone and iPad will dominate in future years as they have in the past.
Rackspace, already stinging from last week’s sell-off, fell again after announcing plans to lower prices on several of its cloud computing products. News of a “price war” soon filled the wires and sent the stock lower. A perfectly appropriate response if we were, in fact, talking about a race to the bottom. I don’t believe that’s true. Instead, I think Rackspace is taking advantage of six consecutive quarters of higher gross margin to draw in clients who might otherwise believe its entry-level services too pricey.
Since Rackspace is famous for keeping clients for years, any move to capture more — even at the very low end of the market — could lead to a flowing stream of long-term profits.
What’s the Big Idea this week?
Once more, my five tech stocks lagged as a group and I’m now 277 basis points behind Mr. Market after being up by double-digits not so long ago. Call it growth investing gone wild. Again.
Indexes varied. Only the megacap Dow Jones Industrial Average moved higher, up 0.13% in a week in which the Nasdaq fell 0.95%. The S&P 500 and Russell 2000 also declined, off 0.28% and 0.76%, respectively, according to data supplied by The Wall Street Journal. Here’s a closer look at where I stood through Friday’s close:
| Company | Starting Price* | Recent Price | Total Return |
|---|---|---|---|
| Apple | $416.26** | $450.81 | 8.3% |
| Google (NASDAQ:GOOG) | $650.09 | $799.71 | 23% |
| Rackspace Hosting | $41.65 | $54.59 | 31.1% |
| Riverbed Technology | $25.95 | $16.28 | (37.3%) |
| salesforce.com | $100.93 | $170.56 | 68.9% |
| AVERAGE RETURN | — | — | 18.80% |
| S&P 500 SPDR | $124.94** | $151.89 | 21.57% |
| DIFFERENCE | — | — | (2.77)% |
Source: Yahoo! Finance.
* Tracking began at market close on Jan. 6, 2012.
** Adjusted for dividends and other returns of capital.
Among the other tech stocks making news last week:
1). Google unveiled a new higher-end Chromebook, the Pixel, aimed at challenging the current crop of Ultrabooks as well as Apple’s MacBook Air. The device’s high-resolution touchscreen could also foreshadow a long-overdue Chrome OS tablet. On balance, I like the idea. But I’d like it much more if the Pixel had a faster processor (1.8 GHz dual-core versus at least 2.6 GHz for most Macs) and more memory (4GB, versus 8GB for most laptops).
