While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one best left off your watchlist.
One Stock to Sell:
CTS (CTS)
Trailing 12-Month Free Cash Flow Margin: 16.8%
With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE: CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.
Why Does CTS Worry Us?
- Annual sales declines of 5.7% for the past two years show its products and services struggled to connect with the market during this cycle
- Revenue base of $520.9 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Earnings per share have contracted by 4.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $42.16 per share, CTS trades at 17.6x forward P/E. To fully understand why you should be careful with CTS, check out our full research report (it’s free for active Edge members).
Two Stocks to Watch:
Brinker International (EAT)
Trailing 12-Month Free Cash Flow Margin: 7.7%
Founded by Norman Brinker in Dallas, Brinker International (NYSE: EAT) is a casual restaurant chain that operates the Chili’s, Maggiano’s Little Italy, and It’s Just Wings banners.
Why Are We Positive On EAT?
- Same-store sales growth averaged 13.3% over the past two years, showing it’s bringing new and repeat diners into its restaurants
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
- Free cash flow margin increased by 2.6 percentage points over the last year, giving the company more capital to invest or return to shareholders
Brinker International’s stock price of $126.65 implies a valuation ratio of 12.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Xylem (XYL)
Trailing 12-Month Free Cash Flow Margin: 10.1%
Formed through a spinoff, Xylem (NYSE: XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector.
Why Could XYL Be a Winner?
- Annual revenue growth of 20.1% over the last two years was superb and indicates its market share increased during this cycle
- Offerings are difficult to replicate at scale and result in a stellar gross margin of 37.6%
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 15.9% annually
Xylem is trading at $148.32 per share, or 28.9x 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
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 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
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