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:
Watsco (WSO)
Trailing 12-Month Free Cash Flow Margin: 7.4%
Originally a manufacturing company, Watsco (NYSE: WSO) today only distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies.
Why Do We Steer Clear of WSO?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Performance over the past two years was negatively impacted by new share issuances as its earnings per share fell by 5.8% annually while its revenue was flat
- Eroding returns on capital suggest its historical profit centers are aging
At $403.07 per share, Watsco trades at 33x forward P/E. If you’re considering WSO for your portfolio, see our FREE research report to learn more.
Labcorp (LH)
Trailing 12-Month Free Cash Flow Margin: 8.6%
With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.
Why Does LH Fall Short?
- 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
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 9.4 percentage points
- Earnings per share fell by 7.2% annually over the last five years while its revenue was flat, showing each sale was less profitable
Labcorp is trading at $285.27 per share, or 16.1x forward P/E. To fully understand why you should be careful with LH, check out our full research report (it’s free).
One Stock to Watch:
John Bean (JBTM)
Trailing 12-Month Free Cash Flow Margin: 6.6%
Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.
Why Does JBTM Stand Out?
- Annual revenue growth of 51.1% over the last two years was superb and indicates its market share increased during this cycle
- Healthy unit economics are reflected in its 34.9% gross margin and give it more money to invest in marketing and R&D
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 20.1% annually
John Bean’s stock price of $158.92 implies a valuation ratio of 20x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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