5 Tech Stocks to Buy for 2013: Cadence Design

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet Ratings) -- TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.

TheStreet Ratings model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.

These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel -- rather, use them as a starting point for your own research.

The following pages contain our analysis of 5 out of 50 stocks TheStreet Ratings has identified as being rated a "Buy" heading into the New Year. To view a list of all 50 stocks simply download our FREE report by clicking: HERE

RF Industries (NYSE: RFIL) is rated at BUY with a grade of A+. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income, good cash flow from operations and solid stock price performance. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

To view a list of all 50 stocks simply download our FREE report by clicking: HERE

Highlights from the ratings report include:
  • Powered by its strong earnings growth of 900.00% and other important driving factors, this stock has surged by 30.49% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • Net operating cash flow has significantly increased by 306.68% to $1.39 million when compared to the same quarter last year. In addition, R F INDUSTRIES LTD has also vastly surpassed the industry average cash flow growth rate of 1.81%.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electronic Equipment, Instruments & Components industry. The net income increased by 1069.8% when compared to the same quarter one year prior, rising from $0.06 million to $0.74 million.
  • RFIL has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.91, which clearly demonstrates the ability to cover short-term cash needs.

RF Industries, Ltd. engages in the design, manufacture, and/or sale of communications equipment primarily to the radio and other professional communications related industries in the United States and internationally.

You can view the full RF Industries Ratings Report or get investment ideas from our investment research center.

Cadence Design Systems (NYSE: CDNS) is rated at BUY with a grade of A. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, notable return on equity, compelling growth in net income and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

To view a list of all 50 stocks simply download our FREE report by clicking: HERE

Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 75.34% to $91.93 million when compared to the same quarter last year. In addition, CADENCE DESIGN SYSTEMS INC has also vastly surpassed the industry average cash flow growth rate of -2.33%.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 108.4% when compared to the same quarter one year prior, rising from $28.11 million to $58.58 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Software industry and the overall market, CADENCE DESIGN SYSTEMS INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

Cadence Design Systems, Inc. develops, sells or leases, licenses, and maintains electronic design automation software, hardware, verification intellectual property (IP), and design IP for semiconductor and electronic system customers worldwide.

You can view the full Cadence Design Systems Ratings Report or get investment ideas from our investment research center.

Automatic Data Processing (NYSE: ADP) is rated at BUY with a grade of A. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, increase in net income, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

To view a list of all 50 stocks simply download our FREE report by clicking: HERE

Highlights from the ratings report include:
  • ADP's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.12 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • AUTOMATIC DATA PROCESSING's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AUTOMATIC DATA PROCESSING increased its bottom line by earning $2.82 versus $2.51 in the prior year. This year, the market expects an improvement in earnings ($2.91 versus $2.82).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 0.8% when compared to the same quarter one year prior, going from $302.70 million to $305.30 million.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.

Automatic Data Processing, Inc. provides business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services.

You can view the full Automatic Data Processing Ratings Report or get investment ideas from our investment research center.

Manhattan Associates (NYSE: MANH) is rated at BUY with a grade of A. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

To view a list of all 50 stocks simply download our FREE report by clicking: HERE

Highlights from the ratings report include:
  • MANHATTAN ASSOCIATES INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MANHATTAN ASSOCIATES INC increased its bottom line by earning $2.09 versus $1.25 in the prior year. This year, the market expects an improvement in earnings ($2.78 versus $2.09).
  • Net operating cash flow has slightly increased to $17.46 million or 3.47% when compared to the same quarter last year. In addition, MANHATTAN ASSOCIATES INC has also modestly surpassed the industry average cash flow growth rate of -2.33%.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, MANHATTAN ASSOCIATES INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • MANH has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, MANH has a quick ratio of 1.85, which demonstrates the ability of the company to cover short-term liquidity needs.

Manhattan Associates, Inc. develops, sells, deploys, services, and maintains supply chain software solutions for the planning and execution of supply chain activities. It offers Manhattan SCOPE and Manhattan SCALE, which are platform-based supply chain software solutions.

You can view the full Manhattan Associates Ratings Report or get investment ideas from our investment research center.

Maxim Integrated Products (NYSE: MXIM) is rated at BUY with a grade of A. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins, reasonable valuation levels and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

To view a list of all 50 stocks simply download our FREE report by clicking: HERE

Highlights from the ratings report include:
  • MAXIM INTEGRATED PRODUCTS' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, MAXIM INTEGRATED PRODUCTS reported lower earnings of $1.17 versus $1.61 in the prior year. This year, the market expects an improvement in earnings ($1.75 versus $1.17).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.1%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The gross profit margin for MAXIM INTEGRATED PRODUCTS is rather high; currently it is at 69.90%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 20.52% trails the industry average.
  • MXIM's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MXIM has a quick ratio of 1.82, which demonstrates the ability of the company to cover short-term liquidity needs.

Maxim Integrated Products, Inc. engages in designing, developing, manufacturing, and marketing various linear and mixed-signal integrated circuits worldwide. The company also provides various high-frequency process technologies and capabilities for use in custom designs.

You can view the full Maxim Integrated Products Ratings Report or get investment ideas from our investment research center.

This is just a list of 5 of 50 stocks! Download a list of all 50 of TheStreet Ratings Tech Picks for 2013 NOW!

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

If you liked this article you might like

Analysts' Actions -- Clovis, Altria, Sketchers, Wells Fargo and More

Analysts' Actions -- Clovis, Altria, Sketchers, Wells Fargo and More

Two Little Gems Are Hidden Amid Small-Caps

Two Little Gems Are Hidden Amid Small-Caps

What To Hold: 3 Hold-Rated Dividend Stocks TCAP, SUNS, RFIL

What To Hold: 3 Hold-Rated Dividend Stocks TCAP, SUNS, RFIL

3 Hold-Rated Dividend Stocks: GLP, SSW, RFIL

3 Hold-Rated Dividend Stocks: GLP, SSW, RFIL

What To Hold: 3 Hold-Rated Dividend Stocks FISH, RFIL, SXCP

What To Hold: 3 Hold-Rated Dividend Stocks FISH, RFIL, SXCP