Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.
Two Stocks to Sell:
Sherwin-Williams (SHW)
Trailing 12-Month Free Cash Flow Margin: 6.2%
Widely known for its success in the paint industry, Sherwin-Williams (NYSE: SHW) is a manufacturer of paints, coatings, and related products.
Why Do We Think Twice About SHW?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Anticipated sales growth of 2.5% for the next year implies demand will be shaky
- Free cash flow margin dropped by 8.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $354.56 per share, Sherwin-Williams trades at 29x forward P/E. To fully understand why you should be careful with SHW, check out our full research report (it’s free).
Chemed (CHE)
Trailing 12-Month Free Cash Flow Margin: 12.7%
With a unique business model combining end-of-life care and household services, Chemed (NYSE: CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Are We Cautious About CHE?
- 4.6% annual revenue growth over the last five years was slower than its healthcare peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.9 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Chemed’s stock price of $558.02 implies a valuation ratio of 21.6x forward P/E. If you’re considering CHE for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
TransDigm (TDG)
Trailing 12-Month Free Cash Flow Margin: 22.7%
Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE: TDG) develops and manufactures components and systems for military and commercial aviation.
Why Do We Love TDG?
- Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 14.9% over the past two years
- Additional sales over the last two years increased its profitability as the 30.8% annual growth in its earnings per share outpaced its revenue
- TDG is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its growing cash flow gives it even more resources to deploy
TransDigm is trading at $1,430 per share, or 35.8x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
