Taking Stock: Out With The Old, In With The NewTaking Stock: Out With The Old, In With The New

Now that I've recovered from the dismal technology market of 2002, it's time for an update of the information 100. At the beginning of each year, we review the companies within our list to ensure that they remain relevant.

The information 100 was designed to provide technology investors with an effective way to measure the growth and performance of the IT industry. The index focuses on subsectors that include but aren't limited to communications, networking, software, hardware, and semiconductor companies. It's an equal weighted index with its value, by convention, set to 100.00 at the close of trading on March 1, 1995. We review and rebalance the index after the close on the final trading day of the year.

If, during the year, a company goes out of business, merges with another company, falls below $150 million in total equity market capitalization, gets deleted from the national securities exchange or the Nasdaq national market system, or is otherwise deemed to be unsuitable for inclusion, we delete the company and add another, usually within the same year.

Here are our guidelines for adding stocks: Market capitalization of the equity (common shares) must exceed $250 million; common shares must trade on a national securities exchange or the Nasdaq; both the financial and operating condition of the company must be sound; and the dominant business focus and majority of revenue must be generated from IT or directly related enterprises.

Guidelines for deleting stocks: Merger, acquisition, or leveraged buyout; bankruptcy; restructuring; lack of business representation; company's main business no longer represents one of our sectors; or market capitalization drops below $150 million. If a company's share price falls to less than $10 per share, it's reviewed for suitability; if the share price declines to $5 or less, the company is replaced.

The one major exception I made in 2002 and 2003 was that I lowered the share price value limit to $3. So many of the companies declined so dramatically that to keep the price cutoff at $5 would have eliminated too many relevant companies.

This year, we removed Akamai Technologies, Ariba, Gateway, Interwoven, i2 Technologies, JDS Uniphase, Lucent, Manugistics Group, Nortel Networks, Openwave Systems, Rational Software, Riverstone Networks, Sapient, SkillSoft, Storage Networks, Sycamore Networks, and Vignette. Added were Analog Devices, BearingPoint, Broadcom, Business Objects, Cognizant Technology Solutions, Cognos, Comverse Technology, Concord EFS, Echelon, Fair, Isaac and Co., Fiserv, Identix, Informatica, Jack Henry & Associates, Marvell Technology, Seagate Technology, and WebEx.

Sixteen companies were replaced because their share prices came in below $3 on Dec. 31; Rational was removed because it's set to be acquired by IBM.

As you can see, we've eliminated more than a few telecom and network-equipment vendors as well as a few software companies. Many are well-known names. They've been replaced by software and service companies, for the most part. The new companies' services range from outsourcing to business intelligence and specific niche applications.

William Schaff is chief investment officer at Bay Isle Financial LLC, which manages the information 100 Stock Index. Reach him at [email protected].

To discuss this column with other readers, please visit William Schaff's forum on the Listening Post.

To find out more about William Schaff, please visit his page on the Listening Post.