NEW YORK (TheStreet) -- SunGard Data Systems, a technology firm for the financial industry, filed an IPO with the SEC on June 4. Sungard said it will try to raise $100 million in the public markets, a rather small amount, which has led some to think that the company is doing it to signal to possible acquirers that it's available for purchase. The company is reportedly negotiating with firms like Fidelity National (FIS), SS&C Technologies Holdings among others about a sale.
SunGard is privately held by private-equity firms Bain Capital, KKR & Co. (KKR) and, Blackstone Group (BX). It services 15,000 clients in the financial services and its services include asset management, corporate liquidity, hedging, trading and operations, risk analytics, among others.
While investors may not be able to buy stock in SunGard Data Systems any time soon, what other application software companies should they be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which application software companies made the list. And when you're done, be sure to read about which biotech companies to buy now. Year-to-date returns are based on June 5, 2015, closing prices. The highest-rated stock appears last.CDNS data by YCharts
3. Cadence Design Systems, Inc. (CDNS)
Market Cap: $6 billion
Year-to-date return: 7.5%
CDNS BUSINESS DESCRIPTION Cadence Design Systems, Inc.
"We rate CADENCE DESIGN SYSTEMS INC (CDNS) a BUY. 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, solid stock price performance, increase in net income, good cash flow from operations and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.9%. Since the same quarter one year prior, revenues slightly increased by 8.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. 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.
- 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 9.6% when compared to the same quarter one year prior, going from $33.07 million to $36.26 million.
- Net operating cash flow has significantly increased by 66.16% to $46.69 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 -17.70%.
- The gross profit margin for CADENCE DESIGN SYSTEMS INC is currently very high, coming in at 90.91%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, CDNS's net profit margin of 8.81% significantly trails the industry average.
- You can view the full analysis from the report here: CDNS Ratings Report