Here's 3 I've got my eye on.

Vista Group International Ltd (ASX: VGI) dominates a global niche industry – despite hailing from across the ditch (New Zealand). The company sells software that cover all aspects of the cinema, from ticketing sales, food and beverage, digital signage, cash management, staff scheduling and projection.

The company controls around 37% of the global cinema software industry and is the only non-Chinese cinema software provider authorised in China. Cinema screenings in China are growing at a massive 34%.

With a market cap of around $416 million and an expect annual profit of around $8 million, Vista isn't cheap (P/E ratio above 32x), but it appears to be a high-quality company with exceptional growth prospects.

Urbanise.com Ltd (ASX: UBN) provides software to deliver services to buildings. The company's could-based platform gives facilities managers access to a consolidated reporting, monitoring and management platform, saving companies energy and staff costs. As many software-as-a-service (SAAS) products are these days, urbanise charges customers regular monthly subscription fees.

Revenues in the last half grew by 94% to $3.3 million, and the company expects strong growth again in the second half, forecasting revenues of around $9.75 million for the full year.

With a market cap of $277 million and not yet profitable, shares definitely don't appear cheap. But then you are paying for strong growth in revenues. If that continues, today's price could look ridiculously cheap.

Corum Group Limited (ASX: COO) offers software for pharmacies, such as point of sale (POS) and pharmaceutical dispensing software, and reportedly has over 40% of the pharmacy market share. The company also offers software that allows credit card payments over the internet, such as council rates and rental payments. That may sound basic, but it can be difficult and expensive to implement.

Corum has a market cap of $43.6m, and is currently trading on a prospective P/E ratio of 7x and paid out a fully franked 6.9% dividend last financial year. Additionally, the company has more than $12 million cash in the bank and no debt.

Of the 3 above, Corum appears the cheapest – but also appears to have the lowest prospects for massive growth. Foolish investors might want to add all three to their watchlists.

The post 3 software stocks you need to have on your watchlist appeared first on The Motley Fool Australia.

Over 19 years that turns a $10,000 jet ski in to an $11,641,046 private yacht.

Today, Greenblatt has pivoted 180 degrees from his origins in special situations. He is now managing over $5 billion with a quantitative value approach that is based on an expansion of his famous Magic Formula.

The premise of the Magic Formula is simple: buy good companies at a cheap price. Quality is measured by return on capital employed, while cheapness is measured by the earnings yield (EBIT/Enterprise Value).

Applying this test to the Australian market, and filtering out financials we arrive at the following list.

(Data Source: Capital IQ)

This list will always be full of names that make investors squeamish. There is, after all, a reason that these companies are cheap.

But that is also why Greenblatt advocates a mechanical adoption of the Magic Formula strategy. When we add our own human biases to the process we are more likely to under-perform, not less.

There are two companies within this list that are recent additions to my own portfolio: Vocation (ASX:VET) and Reverse Corp (ASX:REF).

Neither are pretty businesses. Vocation faces a class action lawsuit regarding its disclosure practices, and Reverse Corp's reverse calling 1-800 number faces long term structural decline. The bear case is easy to make for each, but that is the nature of deep value investments.

What matters is the price that we pay for a given level of quality. Reverse Corp's main business may be in structural decline, but with $6 million in cash and expected half year EBITDA of $1.35 million, it doesn't take much to justify the current $12.5 million valuation.

Following a mechanical quantitative-value approach empowers us to avoid the gag-reflex that these type of companies typically engender.

I back tested this approach over the past 12 months. The results were encouraging. The December 2013 portfolio of 30 companies is up 8.01% for the year, compared with the All Ordinaries which is down -1.07%.

However it must be noted that this back test is subject to survivorship bias. I have taken a list of the 2,144 companies that currently make up the ASX and then selected based on what their rankings would have been a year ago. This excludes any companies that would have been selected a year ago but which have since stopped trading under that name (bankruptcy, reverse listing etc).

I will be revisiting this list throughout 2015 to see how it is doing, and  re-balancing the portfolio. I am also looking at a couple of ways to tweak the algorithm and underlying data to better target what Greenblatt is reaching for.

It is easy for us to dismiss the Magic Formula as too simple to be taken seriously. But with one of the world's all time greatest investors now managing over $5 billion using a modified version of this strategy, it's about time the Magic Formula gets the attention it deserves.

The post 30 Aussie Magic Formula Picks for 2015 appeared first on The Motley Fool Australia.

Telstra Corporation Ltd (ASX: TLS) is perhaps Australia's most famous blue-chip company that boasts sticky recurring revenue. It might not hold the same promise of an imminent boost to profits as construction companies like Lend Lease Group (ASX: LLC) do, but its reliable revenue streams inoculate it against sudden downturns. Telstra's revenue is sticky because the marginal benefits (if any) of changing phone, internet, or mobile provider are often outweighed by the inconvenience of making the change.

Vocus Communications Limited (ASX: VOC) can also boast growing sticky revenue, although it differs from Telstra. Vocus specialises in providing dark fibre, data centre space, internet and VOIP services to businesses located in the various Australian central business districts. As a result, Vocus customers are probably less price sensitive than Telstra customers, but far more sensitive to reliability and performance. It's a good thing Vocus offers some of the fastest and most secure communications in Australia.

XERO NZ FPO (ASX: XRO) is probably the most well-known ASX listed company with growing sticky revenue (although to date is has not reported a profit). Xero offers accounting software as a service. Software is generally even more sticky than telecommunications, because it requires certain skill and know-how on behalf of the user. These skills would have to be re-learned should the customer change providers. Unfortunately, Xero (the stock) is still too expensive for me.

Speaking of software, market minnow Corum Group Limited (ASX: COO) is a great case study of how software can be quite sticky. Corum has (supposedly) over 40% of the market for pharmacy software on its  Amfac and Pharmasol products, although Priceline, owned by Australian Pharmaceutical Industries Ltd (ASX: API) uses the main competitor, Fred IT. I've spoken to a pharmacy owner who had been forced to abandon Corum's software when she joined the Priceline network. Though I see the value of sticky revenue – I prefer to invest when it's sticky and growing!

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