Summer heat notwithstanding, August 2008 wasn't exactly a warm time for investors.

Subprime fears had pushed stock prices down 15% for the year up to that point. Massachusetts abandoned legendary value investor Bill Miller and several other fund managers. Bond guru Bill Gross cautioned against investing in U.S. Treasuries. MF Global, now defunct, was making headlines for losing four-fifths of its value following a trading scandal.

And if all that wasn't bad enough, a global seizing of the credit market plunged Lehman Brothers into bankruptcy and the global economy into recession.

Amid this chaos, on Aug. 7, 2008, I decided to challenge Mr. Market to a three-year contest. My five tech-stock picks versus the entire S&P 500 index. Winner take all, with "all" being public glory or public shame. Here's the final tally:

Company

Starting Price*

Recent Price

Total Return

Akamai $22.23 $22.59 1.6%
Harris & Harris $6.22 $4.38 (29.6%)
IBM $122.42** $172.98 41.3%
Oracle $22.29** $28.35 27.2%
Taiwan Semiconductor $8.97** $11.56 28.9%
AVERAGE RETURN -- -- 13.88%
S&P 500 SPDR $119.45** $120.08 0.53%
DIFFERENCE -- -- 13.35

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

Today, I'm tossing down the gauntlet again. Five new stocks; same three-year contest. (Get a fuller explanation of the strategy and the reasons I think my results are repeatable.) Here's who I've picked to be on my team, and why.

Apple (NAS: AAPL)
Starting price: $422.46

Do you really need to ask? Not only does the Mac maker produce one of the world's most sought-after devices -- I still can't walk in and buy an iPhone 4s at any of my local Apple retail stores -- but developers are also taking to iOS to create apps in numbers reminiscent of the glory days of Windows.

Yeah, I said it. Apple is the new Microsoft, a magnet for coders looking to create the Next Big Thing in mobile software. You know why? Because Android apps make only 24% as much as their iOS alternatives, according to data from Flurry Analytics.

Google (NAS: GOOG)
Starting price: $650.09

For all my touting of Apple, you'd think I'd want nothing to do with Google. Wrong. Android isn't the principal value driver for the Big G. Content is, and with the Web spreading from our computers to our phones, to our TVs, to tablets, and more, there's never been a richer or more available database for marketing than the one Google possesses. Yet at less than 18 times forward earnings, the company is valued as just another run-of-the-mill, above-average growth stock.

salesforce.com (NYS: CRM)
Starting price: $100.93

Go ahead; laugh. I'm used to it by now. Yes, salesforce.com boasts a stratospheric valuation at more than 70 times forward earnings. But is this really so surprising when SAP was willing to pay more than 250 times projections for niche cloud-computing peer SuccessFactors?

If you believe, as I do, that salesforce.com is leading a revolution that will see more and more business software accessible through a browser -- then the number you should care about is $400 billion. The major suppliers of install-and-manage business software are worth more than $400 billion in market cap as of this writing; salesforce.com is worth less than $14 billion. I'm betting this chasm will narrow significantly over the next decade.

Rackspace Hosting (NYS: RAX)
Starting price: $41.65

Aside from The Motley Fool itself, I'm convinced there's no company more Foolish in how it operates than Rackspace. CEO Lanham Napier recently expounded on the company's philosophy in a visit to Fool HQ. The key takeaway: Nothing is so sacred as preserving a culture that obsesses over delighting customers. Mix in strong and improving incremental returns on capital and an increasing need for hosting websites and services as the Web grows in popularity as a platform for doing business, and you have the makings of what I believe will be an outstanding long-term Rule Breaker.

Riverbed Technology (NAS: RVBD)
Starting price: $25.95

Finally, there's Riverbed, whose technology strips away unnecessary bits in transferring data over a network. The idea is simple: Make data lighter, and it'll travel faster. The downside? Riverbed specializes in expensive combinations of hardware and software that can be a tough sell in trying economic times. Yet with its legions of fans among corporate technology buyers, a reasonable valuation, and a large and growing market-share edge, I believe Riverbed has explosive upside from today's levels.

The Foolish bottom line
Each of these five companies is leading a big industry shift. Since big shifts are borne of big ideas, I call this my Big Idea Portfolio. Think of it as representative of how I recommend stocks to Fool co-founder David Gardner for our Motley Fool Rule Breakers service.

Of course, mine isn't the only way to profit from rebellious growth plays. Problems in diagnosis and delivery of health care have led to dozens of breakthrough innovations, resulting in billions of dollars' worth of public market value. The Motley Fool recently profiled one such up-and-comer -- a device maker cut from the mold created by multibagger winner Intuitive Surgical -- in a new special report. Get instant access to the profile and accompanying research for free.

At the time this article was published Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple, Google, IBM, Rackspace Hosting, Riverbed Technology, salesforce.com, and Taiwan Semiconductor at the time of publication. Check out Tim's Web home, portfolio holdings and Foolish writings, or connect with him on Google+ 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 IBM, Google, Oracle, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Rackspace Hosting, salesforce.com, Intuitive Surgical, Riverbed Technology, Microsoft, Apple, and Google creating bull call spread positions in Apple and Microsoft, writing covered calls in Riverbed Technology, and shorting salesforce.com. 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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