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 reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
Kraft Heinz (KHC)
Trailing 12-Month Free Cash Flow Margin: 14.4%
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Why Should You Sell KHC?
- Falling unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 34.6 percentage points
- Underwhelming 1.2% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
Kraft Heinz is trading at $23.90 per share, or 9.7x forward P/E. Read our free research report to see why you should think twice about including KHC in your portfolio.
Donaldson (DCI)
Trailing 12-Month Free Cash Flow Margin: 9.3%
Playing a vital role in the historic Apollo 11 mission, Donaldson (NYSE: DCI) manufacturers and sells filtration equipment for various industries.
Why Does DCI Worry Us?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales growth of 3.2% for the next 12 months is soft and implies weaker demand
- 2.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Donaldson’s stock price of $85.90 implies a valuation ratio of 21.5x forward P/E. Check out our free in-depth research report to learn more about why DCI doesn’t pass our bar.
One Stock to Buy:
Construction Partners (ROAD)
Trailing 12-Month Free Cash Flow Margin: 6.9%
Founded in 2001, Construction Partners (NASDAQ: ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Why Will ROAD Outperform?
- Market share is on track to rise over the next 12 months as its 33.2% projected revenue growth implies demand will accelerate from its two-year trend
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 70.6% outpaced its revenue gains
- Free cash flow margin grew by 5.1 percentage points over the last five years, giving the company more chips to play with
At $113.02 per share, Construction Partners trades at 42.7x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. 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-small-cap company Comfort Systems (+782% 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
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