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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here is one cash-producing company that excels at turning cash into shareholder value and two best left off your watchlist.
Two Stocks to Sell:
Fortune Brands (FBIN)
Trailing 12-Month Free Cash Flow Margin: 8.2%
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Should You Dump FBIN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 9.8 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.9% annually
Fortune Brands’s stock price of $43.97 implies a valuation ratio of 12.3x forward P/E. If you’re considering FBIN for your portfolio, see our FREE research report to learn more.
Archer-Daniels-Midland (ADM)
Trailing 12-Month Free Cash Flow Margin: 5.2%
Transforming crops from the world's most productive agricultural regions into everyday essentials, Archer-Daniels-Midland (NYSE: ADM) processes and transports agricultural commodities like grains and oilseeds while manufacturing ingredients for food, beverages, feed, and industrial applications.
Why Does ADM Worry Us?
- Sales tumbled by 7.5% annually over the last three years, showing consumer trends are working against its favor
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 6.5%
- Earnings per share have contracted by 24.2% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Archer-Daniels-Midland is trading at $70.70 per share, or 18x forward P/E. To fully understand why you should be careful with ADM, check out our full research report (it’s free).
One Stock to Watch:
Procter & Gamble (PG)
Trailing 12-Month Free Cash Flow Margin: 18.2%
Founded by candle maker William Procter and soap maker James Gamble, Proctor & Gamble (NYSE: PG) is a consumer products behemoth whose product portfolio spans everything from facial tissues to laundry detergent to feminine care to men’s grooming.
Why Is PG on Our Radar?
- Enormous revenue base of $85.26 billion provides significant negotiating leverage in retail partnerships
- Highly efficient business model is illustrated by its impressive 25.4% operating margin
- Robust free cash flow margin of 18.3% gives it many options for capital deployment
At $151.96 per share, Procter & Gamble trades at 21.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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