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 ChartCDNS data by YCharts
3. Cadence Design Systems, Inc. (CDNS)

Rating: A

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.

FDS ChartFDS data by YCharts
2. FactSet Research Systems Inc. (FDS)

Rating: A

Market Cap: $6.9 billion
Year-to-date return: 17%

FactSet Research Systems Inc. provides integrated financial information and analytical applications to investment community in the United States, Europe, and the Asia Pacific.

"We rate FACTSET RESEARCH SYSTEMS INC (FDS) 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, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and growth in earnings per share. 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 9.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • FDS'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. To add to this, FDS has a quick ratio of 2.03, which demonstrates the ability of the company to cover short-term liquidity needs.
  • 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, FACTSET RESEARCH SYSTEMS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 54.92% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FDS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • FACTSET RESEARCH SYSTEMS INC has improved earnings per share by 19.7% in the most recent quarter compared to the same quarter a year ago. 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, FACTSET RESEARCH SYSTEMS INC increased its bottom line by earning $4.93 versus $4.47 in the prior year. This year, the market expects an improvement in earnings ($5.60 versus $4.93).

SNPS ChartSNPS data by YCharts
1. Synopsys, Inc. (SNPS)

Rating: A

Market Cap: $7.9 billion
Year-to-date return: 16.7%

Synopsys, Inc. provides electronic design automation (EDA) software products used to design and test integrated circuits and electronic systems in the United States, Europe, Japan, and the rest of Asia Pacific.

"We rate SYNOPSYS INC (SNPS) 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, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, solid stock price performance and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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 7.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • SNPS'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. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.01, which illustrates the ability to avoid short-term cash problems.
  • Compared to its closing price of one year ago, SNPS's share price has jumped by 27.60%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, SNPS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Net operating cash flow has increased to $155.08 million or 38.70% when compared to the same quarter last year. In addition, SYNOPSYS INC has also vastly surpassed the industry average cash flow growth rate of -17.70%.

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