Top 10 Software Stocks of 2006

Software stocks may have only performed in-line with the rest of the market, but these stocks were at the top of the class.  The easiest way to make this list in 2006 was to be bought by a strategic acquirer such as IBM, HP, pr EMC.  Other than that, it's pretty much a grab bag of stocks but medical software stocks were particularly strong, as were open source and VOIP related stocks.

To qualify for this list a company had to start 2006 with at least $50M in market cap and its main business had to be selling software as a license or a service.  So, without further ado, here are the Top 10 Software Stocks of 2006:

1. Interactive Intelligence
   Price Change: 340% Ticker: ININ
   Comment: Pioneer in enterprise IP Telephony saw rapidly increasing sales as enterprises started to take VOIP seriously, especially call centers.
2. VA Linux
   Price Change: 183% Ticker:LNUX
   Comment:  Operator of  open source software portal "sourceforge.org"  and geek news site Slashdot.org saw shares rise as Sourceforge.net grew quickly and as it released an enterprise software version of sourceforge.org.  I will be moving this to the Internet sector for 2007 given that it is more much a content/e-commerce play now than it is a software company.
3. RSA Data Security
   Price Change: 149% Ticker: RSAS
   Comment: Early leader in hard tokens and public key encryption was bought by EMC this past summer for a nice premium.  May be first of several security acquisitions by EMC.
4. Smith Micro Software
   Price Change: 143% Ticker: SMSI
   Comment: Provider of a multitude of wireless software products and owner of the venerable Stuffit program, saw sales rise as carriers such as Verizon stuck deals for several of their software products.
5. Allscripts Healthcare Solutions
   Price Change: 101% Ticker: MDRX
   Comment: Strong demand their medical records management software thanks in part to government mandates helped propel this stock upward.
6. Quadramed
   Price Change: 92% Ticker: QD
   Comment: Another medical records software company.  I think I see a trend.
7. Acutate
   Price Change: 89% Ticker: ACTU
   Comment: Business intelligence vendor benefited from finally turning profitable and from it's emerging open source platform.
8. Mercury Interactive
   Price Change: 87% Ticker: MERQ
   Comment:  Application performance management vendor that  put enough of its accounting problems behind it to secure a sale to HP.
9. MRO Software
   Price Change: 83% Ticker: MROI
   Comment:  One of 3 public software companies that IBM bought in 2006.  Not sure how this fits into IBM's "we don't compete with our application partners" party line.
10. Mentor Graphics
    Price Change: 74% Ticker: MENT
    Comment: EDA tools vendor saw a nice rebound after a terrible 2005 as license sales picked back up.