How Saved My Portfolio From Another Loss


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 me 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 week, my portfolio enjoyed huge rallies in shares of Apple and Rackspace Hosting -- up 11% and 13.3%, respectively. Yet neither of these businesses added so much as, which rallied a remarkable 18.5% from my cost basis after reporting better-than-expected results last week.

The cloud computing star said revenue rose 35% to $788 million while adjusted earnings per share fell a penny to $0.33 a share. Analysts were expecting $776.5 million and $0.32 a share. The stock rallied more than 8% following the report and continued its ascent following the Thanksgiving holiday.

Why such a jump when earnings were actually down? Most signs point to higher deals and continued growth in the core business. For example, deferred revenue -- which measures software and service purchased but not yet recorded on the income statement -- rose 41%. Salesforce also slightly raised guidance for fiscal Q4.

More important for long-term investors, backlog continues to rise steadily. What was $2.2 billion as of last year's fiscal Q4 grew to $2.7 billion in Q1, $2.8 billion in Q2, and now sits at $3 billion of contracted yet unbilled revenue from its various cloud-based applications. Which is to say there's plenty of growth left in this story.

What's the Big Idea this week?
Salesforce's results provided needed tailwind to my portfolio, which had suffered three straight weeks of losses to Mr. Market in our battle for stock-picking supremacy. No longer. My five stocks rose enough to add a combined 9.78% to my average return.

Indexers fared well enough overall but lagged by comparison. The Nasdaq and Russell 2000 led the exchanges with a 3.99% and 3.98% return, respectively, last week. S&P 500 index enjoyed a 3.62% gain while the Dow added 3.28%, according to data supplied by The Wall Street Journal. Here's a closer look at where I stood through Friday's close:


Starting Price*

Recent Price

Total Return









Rackspace Hosting




Riverbed Technology












S&P 500 SPDR








Source: Yahoo! Finance. *Tracking began at market close on Jan. 6, 2012. **Adjusted for dividends and other returns of capital.

Notable newsmakers
Of the other stocks in my portfolio, Google is still sorting out how to meet unexpected demand for its new Nexus devices while giving YouTube even more resources for streaming custom content and movies. Specifically, Syfy -- aka, the Sci-Fi Channel -- launched Battlestar Galactica: Blood & Chrome as a web series ahead of an expected two-hour special due to air on regular cable channels in 2013.

In acquisitions news, Cisco Systems purchased wireless network enabler Meraki for $1.2 billion. The deal looks like an effort to bulk up Cisco's service offerings ahead of an expected explosion in wireless Internet traffic over the next several years.

Netflix also drew headlines for enabling its software on the new Wii U ahead of not only competitors but also console creator Nintendo, whose TVii service isn't due before next month. Meanwhile, activist investor Carl Icahn exercised outstanding call options in order to create a full position in Netflix shares accounting for about 9.98% of the business. You can bet his next step is to lobby for a seat on the board.

Is Icahn right to be so aggressive? The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. Other see how a fast-growing market for streaming media has brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple, Google, Netflix, Rackspace Hosting, Riverbed Technology, and Salesforce at the time of publication. He also had a long-term call options position in Netflix. Check out Tim's web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader. The Motley Fool owns shares of Apple, Google, Netflix, and Riverbed Technology. Motley Fool newsletter services recommend Apple, Salesforce, Google, Netflix, Rackspace Hosting, and Riverbed Technology. Try any of our Foolish newsletter services free for 30 days. 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.

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