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. Keeping that in mind, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may struggle to keep up.
Two Stocks to Sell:
Semtech (SMTC)
Trailing 12-Month Free Cash Flow Margin: 12.8%
A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.
Why Do We Avoid SMTC?
- Historical operating margin losses have deepened over the last five years as it prioritized growth over profits
- Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 6.5%
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
At $67.65 per share, Semtech trades at 39.7x forward P/E. If you’re considering SMTC for your portfolio, see our FREE research report to learn more.
Deere (DE)
Trailing 12-Month Free Cash Flow Margin: 18.4%
Revolutionizing agriculture with the first self-polishing cast-steel plow in the 1800s, Deere (NYSE: DE) manufactures and distributes advanced agricultural, construction, forestry, and turf care equipment.
Why Do We Pass on DE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 18.1% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 25.6% annually, worse than its revenue declines
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Deere is trading at $475.50 per share, or 25.7x forward P/E. To fully understand why you should be careful with DE, check out our full research report (it’s free for active Edge members).
One Stock to Watch:
DraftKings (DKNG)
Trailing 12-Month Free Cash Flow Margin: 12%
Getting its start in daily fantasy sports, DraftKings (NASDAQ: DKNG) is a digital sports entertainment and gaming company.
Why Could DKNG Be a Winner?
- Number of monthly unique players has surged, pointing to elevated demand
- Market share will likely rise over the next 12 months as its expected revenue growth of 25.9% is robust
- Free cash flow margin is forecasted to grow by 4.1 percentage points in the coming year, potentially giving the company more chips to play with
DraftKings’s stock price of $29.80 implies a valuation ratio of 24.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% 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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