Nasdaq-100 Reshuffling Marks Shift Away From Tech

In the Nasdaq’s annual house-cleaning of the Nasdaq-100 Index (AMEX: QQQ) — a key tracking stock that provides a barometer for the Nasdaq as a whole — a number of flagging technology stocks were swept out the door.

The Nasdaq replaced 13 Internet and technology firms from the Nasdaq 100 with a mix of new issues, mostly from the healthcare and biotechnology fields.

“It’s a reflection of the economy,” John L. Jacobs, president and chief executive officer of Nasdaq Financial Products Services, told the E-Commerce Times. “The Nasdaq-100 represents growth stocks, and this year telecom and Internet companies were down and biotech was up.”

This year’s changes take effect when the market opens December 24th.

Unlucky 13

Among the unlucky 13 that Nasdaq booted from the Nasdaq-100 Index are former dot-com highfliers CNET Networks (Nasdaq: CNET), CMGI (Nasdaq: CMGI), Inktomi (Nasdaq: INKT) and RealNetworks (Nasdaq: RNWK). Technology stalwarts 3Com (Nasdaq: COMS), Novell (Nasdaq: NOVL), Palm (Nasdaq: PALM) and Level 3 Communications (Nasdaq: LVLT) also received their walking papers.

Issues being added to the Index include life sciences and biotechnology companies ImClone Systems (Nasdaq: IMCL), Invitrogen (Nasdaq: IVGN), Cephalon (Nasdaq: CEPH), Cytyc (Nasdaq: CYTC), and Protein Design Labs (Nasdaq: PDLI).

For his part, Jacobs downplayed the shift.

“It’s part of the annual re-ranking and represents the objective transition of the Index to serve as a reflection of the 100 largest stocks on Nasdaq,” Jacobs said.

Descent Into Disfavor

Jeff Fieler, a New York-based analyst with Bear Stearns, agreed that observers should not read too much into the moves because the decision is based on market capitalization, or the stock price multiplied by the number of shares outstanding.

Fieler said that many of the departing stocks experienced significant decreases in stock price, while the ones being added saw big run-ups.

“The best get added when they’re on their way up and the worst get deleted when they’re on their way down,” Fieler told the E-Commerce Times.

“It’s just something they do every year,” Fieler added. “It shows the disfavor that some of these tech stocks have undergone in the past year.”

Some Consolation

Still, the makeup of the Nasdaq-100 Index is of prime importance to investors, because there are 23 domestic mutual funds and seven international funds linked to it.

Even though the changes sweeping through the Nasdaq-100 Index takes a heavy toll on Internet companies, there is some consolation for the technology industry. Among those being added to the Index are security software company Symantec, retailer CDW Computer Centers, and electronic design automation software company Synopsys.

Even with the changes, “the Nasdaq-100 is still a tech-heavy index,” Jacobs said.

Weighing In

The Nasdaq-100 is re-ranked in December of each year, based on a number of factors — most importantly, market capitalization.

The Index, which excludes financial companies, is also weighted to limit domination by a few large stocks while retaining the capitalization ranking of companies.

Tech giants Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC) and Cisco (Nasdaq: CSCO) have the three highest weightings in the Index.