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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, 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:
onsemi (ON)
Trailing 12-Month Free Cash Flow Margin: 20.8%
Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ: ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Why Does ON Worry Us?
- Annual sales declines of 10.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Forecasted revenue decline of 10.2% for the upcoming 12 months implies demand will fall even further
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 13.4% for the last two years
At $44 per share, onsemi trades at 16.4x forward P/E. To fully understand why you should be careful with ON, check out our full research report (it’s free).
Warner Bros. Discovery (WBD)
Trailing 12-Month Free Cash Flow Margin: 11.3%
Formed from the merger of WarnerMedia and Discovery, Warner Bros. Discovery (NASDAQ: WBD) is a multinational media and entertainment company, offering television networks, streaming services, and film and television production.
Why Should You Sell WBD?
- Annual revenue declines of 4.9% over the last two years indicate problems with its market positioning
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 17% annually
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Warner Bros. Discovery’s stock price of $9.10 implies a valuation ratio of 166.4x forward P/E. Dive into our free research report to see why there are better opportunities than WBD.
One Stock to Buy:
Costco (COST)
Trailing 12-Month Free Cash Flow Margin: 2.6%
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ: COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Why Will COST Beat the Market?
- Locations open for at least a year are seeing increased demand as same-store sales have averaged 4.4% growth over the past two years
- Enormous revenue base of $264.1 billion compensates for its low gross margin and provides significant leverage in supplier negotiations
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Costco is trading at $1,018 per share, or 54x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
