After we penned our Top 10 Best Web Acquisitions, we knew we had to think of something better for our next Top 10 list. We thought long and hard and realized that there were few lists highlighting some of the best stocks in high technology, Internet or in wireless.
This list is for entertainment purposes and should not be construed as actual investment advice. That being said, we did not simply want to list a chart of historical performance of some marquee stocks. And, since previous performance does not guarantee future performance, this article is actually broken up into two:
1) A historical breakdown - or quantitative analysis - of 20 stocks that have simply outperformed the market and made investors a lot of money [please note that these are NOT the 20 stocks with the highest returns, but rather, 20 bellwhethers of sorts].
2) A subjective - or qualitative analysis - trying to balance the past, present and future. After all, finance is all about guessing the next move.
Again, this is not to be taken as investment advice and is for entertainment purposes only. All disclosures coming at the end.
- Historical performance matters quite a bit, but is not the main variable.
- If a stock is currently at an all time high, that is a major plus, especially if there are more aces up their sleeves, so to speak.
- We’ve tried to blend high technology stocks in software, along with consumer web companies, as well as those competing in wireless.
- We looked at 20 stocks and listed them all based on historical performance, but…
- Since historical performance does not guarantee future performance, and we did not want to simply look at the past, we have handpicked the Top 10 Stocks of the group, combining previous performance, where they are today and what the future holds.
- Somehow, we had to account for P/E, market capitalization in the second part. Otherwise, we’re plain speculators.
- The company’s stock must be traded today [all acquired firms are out].
- Finally, since goodwill does account for a company’s value, and brand equity is a major component of goodwill, we certainly considered that.
An example of all of this: Dell (DELL) is arguably one of the best stocks from a historical perspective, but the company is in trouble these days and there are many competitors that question its future. While a finance student would marvel at the stock [the past], an investor would question its future firepower.
For Part 1, we ranked the 20 bellwethers returns today going back to the date of IPO [we also calculated a per annum return since some of these firms have been public for longer than others]. Note also that for IBM (IBM) and HP (HPQ) we did not go all the way back to the IPO dates but only 1962. Since we did not include these in the second part and do not pretend these lists to be exhaustive lists, we hope you forgive us.
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And now, Part 2. Adding the current prospects and future outlook of the companies, we have handpicked the
Ten Eleven Best Stocks:
#11 - Intel (INTC)
We decided once again to offer you an eleventh selection, because it would have been practically heretic to leave off Intel and not give it an honorable mention. Judging by Intel’s past, the stock should place much higher: a 1986 IPO share began trading at less than $0.50 and at its peak in 2000 was worth over $75. But today, the stock is worth a third of that and while Intel is indeed inside many things, it faces severe competition and has some tough questions to ask over its future. Andy Grove’s legendary “Only the Paranoid Survive” is as memorable as the “Intel Inside” branding the company pulled off. For all of that, INTC weighs in at #10 but almost blasphemously misses the cut.
#10 - Apple (AAPL)
Trust me, Apple does not make the cut for sentimental reasons. It makes it because the company’s brand is ferociously strong, its user base are fanatically loyal, the stock trades at its all time high, and while its computer business is humming along, its music division is showing why it is king of the mountain. Oh, did we mention the iPhone?
Let’s face it: in some circles, Apple has more haters than OJ Simpson. But Apple has also got more lives than your average cat. The company is also far more than one based on a cult of personality, but having Steve Jobs steer the ship and keeping the hits coming has not hurt.
Right now, based on the future and present, Apple could place much higher, but we are trying to balance past with present and future, so while Apple makes the cut, it comes in at #9.
#9 - Dell (DELL)
If this were a strictly empirical, statistical, objective and/or quantitative list, Dell should be in the Top 3. But we’ll leave those lists for the junior analyst with the freshly minted MBAs. As far as we are concerned, yes, Dell’s IPO share - which traded for a split-adjusted price of $0.10 - would have appreciated nearly 5,000% to this day, but that is far, far off from its peak return of nearly 60,000%. ‘Nuff said. Michael Dell needs to do some serious soul-searching and kick Dell back into shape.
#8 - Oracle (ORCL)
Plain and simple, Oracle’s past helps it make the cut. The stock IPO’d back in 1988 and soared 25,000% to reach its peak. Of course, as the bubble burst, the stock fell and today the stock is up a mere 11,000%. Yes, we’re being cynical with the use of the term “mere.” Oracle’s done enough in the past 18 years to justify being on the Top 10.
#7 - Qualcomm (QCOM)
Back in the cooky days of 1999, Qualcomm was given a $1,000 price target. Of course, it never hit it, but who cares, the stock went on to be one of the market leaders of the Y2K era. Wireless was full of promise and few companies had as much to gain from the boom in mobile than Qualcomm. Today, Qualcomm’s CDMA Technology [QCT] is the largest provider of 3G chipset and software in the world in its sector. It owns a wide array of rich patents that trickle directly to the bottom line. Qualcomm makes the cut for its past, present and future.
#6 - Electronic Arts (ERTS)
No, we’re not gamers, but who cares, a helluva lot of people are. Video games are one of the fastest growing segments around. The video game industry is larger than the film industry. And the growth is coming from many subsets of the industry, not just in terms of sales of consoles, video games but also from in-game advertising: which is expected to triple this year over last year, to $164.7M. By 2010, advertisers will spend $733M on in-game advertising, and Electronic Arts - who owns rights to some of the strongest brands like Madden Football - will stand to benefit in more ways than one.
In fact, ERTS would place much higher on this list but it’s a darn expensive stock as the leader in a high growth field. Of course, it is not merely for its potential and future, it’s also because a share of ERTS [which went public in 1990] at a stock adjusted price of just over $0.50 has soared 6,000%. At $17B in market cap, the stock has room to move up.
#5 - Google (GOOG)
While many on the blogosphere are singing the praises of Google as they cash Google’s Ad Sense checks, the fact remains that 2 years a stock history does not make. Otherwise, it would be a fait accompli that Google is on pace to be worth more than MSFT and on its way to becoming the world’s first trillion dollar market cap company.
Has Google been a smashing success? It’s been practically the only IPO mega-success of the 21st century…
While Google’s stock has soared from $100 to over $500 - and that is simply breathtaking - the fact remains that many of the dot coms rose many times over as well, only to settle back down. Google has benefited from many variables, one of which was a relatively small float of shares outstanding, but all of the naysayers can remain on the sideline as search advertising continues to grow, with estimates pegging the sector to garner 40% of all online advertising revenues by 2010. With a market share of 50%, Google is sitting pretty and should things continue, could find itself rising on this list as it has risen in the stock charts. However, while the stock is not obscenely expensive, at a market cap of $150B, it is not exactly cheap. Furthermore, unlike many other stocks, it had grown quite a bit before its IPO: for purposes of illustration, Cisco had revenues of $69M when it went IPO. Google? Try over $3B. Yep, that affects its placement on such a list.
In other words, while Google has been arguably one of the best investments ever, it has not necessarily been the best stock of all time.
#4 - Yahoo (YHOO)
A tale of the tape shows that Google is clearly beating Yahoo! but in many ways, that’s like comparing apples and oranges. Yahoo! stock - which went public in 1996 for a stock adjusted price of $2 - soared 4,000% at its peak - and is up 1,300% to this day. Those are not too shabby numbers considering that many of YHOO’s original Web 1.0 peer group are missing in action these days.
And, the only reason why YHOO nudges Google at #4 is simple: an investor wants a margin of safety and YHOO at less than $40B is probably a better bet than Google at $150B. Of course, that in itself is speculation.
When you look at the overall growth of online advertising and how marketers will continue to narrow the 25/5 divide - that is consumers spending 25% of their time online while marketers spend only 5% of their budgets online - and Yahoo!’s grip on global advertising agencies and Fortune 500 clients, Yahoo! comes in at #4.
#3 - eBay (EBAY)
eBay’s stock chart is arguably the most impressive one for the reason that unlike other Web companies of the 1994-2000 era, its genius business model was clear and investors ate it up. Unlike many companies that experienced a stock market meltdown in 2000-03, eBay’s income statement thrived, and it leveraged its balance sheet to acquire Paypal for $1.5B in one of the best Web acquisitions of all time which today contributes a growing share of its top and bottom line.
eBay is trading within a reasonable range of its all time high and considering the growth of e-commerce, its recent deal with Yahoo! and [admittedly expensive] acquisition of Skype, the company’s upside is considerable.
#2 - Microsoft (MSFT)
Love ‘em, hate ‘em, you have to respect Bill Gates and Microsoft. It made it founder the richest man on earth and its co-founder one of the luckiest. Microsoft has the ability to move oceans and its stock - despite its 21st century funk - has remained robust forever. The company might not be worth anywhere near its peak of $500B, but it still weighs in at a more than respectable $290B. That’s not too shabby. When the company decided to pay out a massive dividend a couple of years ago, the Department of Commerce had to insert a footnote in its monthly report.
At its peak, the stock had risen nearly 75,000%, today, it is up over 30,000%.
Microsoft would be number one on the list but…
#1 - Cisco Systems (CSCO)
Cisco Systems was - for one shiny day - worth more than Microsoft. Some were not caught off guard since “the network was the computer” and Cisco [and not Sun Microsystems] was the king of the Web, which connected everything.
Of course the Web imploded, VC money dried up, and everything changed. But it is precisely because Cisco managed to come back from a low in the teens to nearly $30 in the past few years [and creep back up to $150B market cap and a P/E of just under 40] that Cisco makes the list at #1.
The web is growing more than ever, and if you like companies like Akamai and Limelight, then you should love Cisco. As more and more data gets transferred online, Cisco is uniquely positioned to benefit from it all.
Oh, in case you’re counting, Cisco - whose IPO stock traded at a split adjusted price of $0.08 - grew nearly 100,000% at its peak and today has seen appreciation of over 32,000%. Its per annum growth has been nearly 10,000%.
Additional Honorable Mentions:
We were biased against Motorola (MOT), Hewlett Packard and IBM because these firms have been around for a while and while their future remains bright, they are blue chips and will not offer investors the kind of return that those reading such a list look for.
Adobe (ADBE) is a great company whose stock is up some 19,000% since its IPO. Adobe was always making the cut, especially between a market cap of $23B [with room to grow] and a P/E of 50 (admittedly rich)… but as the list took shape, two major risks made it miss the cut: a plethora of free online services that make Adobe less than necessary for most consumers and professionals and mainly, piracy. That being said, Adobe is the one dark horse than could make - and lead - such a list in a short few years [look at how YouTube leveraged Adobe’s Macromedia’s Flash video for a sign].
EMC (EMC) too is a company with a tremendous past, but it has undergone some soul searching and putting it on the Top 10 would push off a more deserving stock.
For the record, some of these companies are more than honorable mentions. How could Research in Motion (RIMM) [see chart] not make the second round? The company is at an all time high, it put the potential mortal injunction behind it, but the simple truth is that the company has been massively volatile and faces tremendous competition. Will RIMM be worth 25% less than it is today in a few years? Probably not.
Sandisk (SAND) is a company that would have made the list had 2006 looked a bit more like 2005. Here is a stock that flirted its pre-bust peak but then crashed but down, falling from the mid 80s all the way back down to the high 30s. For what it’s worth, that cost Sandisk the cut.
Amazon.com (AMZN) is a company that defined the Web 1994-2000 but has fallen on some hard times. The company is a glamorous retailer and Wall Street prices it at that. Had it made the cut, it would have simply been for sentimental reasons and would have, in our humble opinion, taken away from the list.
And, in the same vein, many other dot coms had dazzling stock charts up to the burst [Infospace (INSP), Inktomi, etc.] but we had to look the entirety of their lifetimes to really assess their impact. And in the case of Inktomi, companies that have been acquired - hence why AOL is off the list - did not make either list. Trust me, we thought of a way to sneak AOL in there, but it would have been like comparing apples with oranges.
Disclosure: Of the companies mentioned, author is currently long YHOO.