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 are three cash-producing companies to avoid and some better opportunities instead.
Hormel Foods (HRL)
Trailing 12-Month Free Cash Flow Margin: 6.4%
Best known for its SPAM brand, Hormel (NYSE: HRL) is a packaged foods company with products that span meat, poultry, shelf-stable foods, and spreads.
Why Should You Sell HRL?
- Falling unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Gross margin of 16.1% is below its competitors, leaving less money to invest in areas like marketing and production facilities
Hormel Foods is trading at $19.73 per share, or 12.9x forward P/E. Check out our free in-depth research report to learn more about why HRL doesn’t pass our bar.
Paramount (PSKY)
Trailing 12-Month Free Cash Flow Margin: 1.6%
Owner of Spongebob Squarepants and formerly known as ViacomCBS, Paramount Global (NASDAQ: PSKY) is a major media conglomerate offering television, film production, and digital content across various global platforms.
Why Do We Pass on PSKY?
- The company has faced growth challenges as its 1.8% annual revenue increases over the last five years fell short of other consumer discretionary companies
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.1 percentage points
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Paramount’s stock price of $10.02 implies a valuation ratio of 12.2x forward P/E. If you’re considering PSKY for your portfolio, see our FREE research report to learn more.
General Dynamics (GD)
Trailing 12-Month Free Cash Flow Margin: 11.8%
Creator of the famous M1 Abrahms tank, General Dynamics (NYSE: GD) develops aerospace, marine systems, combat systems, and information technology products.
Why Does GD Give Us Pause?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 7.3% over the last five years was below our standards for the industrials sector
- Estimated sales growth of 4% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share lagged its peers over the last five years as they only grew by 7.4% annually
At $337.47 per share, General Dynamics trades at 19.2x forward P/E. Dive into our free research report to see why there are better opportunities than GD.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
