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. That said, here are two cash-producing companies that excel at turning cash into shareholder value and one that may face some trouble.
One Stock to Sell:
Cummins (CMI)
Trailing 12-Month Free Cash Flow Margin: 9.7%
With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.
Why Does CMI Give Us Pause?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Gross margin of 24.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Poor free cash flow margin of 5.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Cummins’s stock price of $536.22 implies a valuation ratio of 15.9x forward P/E. Check out our free in-depth research report to learn more about why CMI doesn’t pass our bar.
Two Stocks to Watch:
Cadence Design Systems (CDNS)
Trailing 12-Month Free Cash Flow Margin: 28.8%
Powering the chips behind everything from smartphones to AI accelerators for over 35 years, Cadence Design Systems (NASDAQ:CDNS) provides essential computational software, hardware, and intellectual property used by engineers to design and verify advanced electronic systems and semiconductors.
Why Are We Fans of CDNS?
- Billings growth has averaged 17.9% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Prominent and differentiated software culminates in a best-in-class gross margin of 86.8%
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
Cadence Design Systems is trading at $360 per share, or 14.6x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Garrett Motion (GTX)
Trailing 12-Month Free Cash Flow Margin: 11.1%
A key player in the transition to cleaner vehicles, Garrett Motion (NYSE:GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.
Why Are We Positive on GTX?
- Earnings per share grew by 44.4% annually over the last two years and trumped its peers
- Free cash flow margin expanded by 6.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Rising returns on capital show management is finding more attractive investment opportunities
At $26.39 per share, Garrett Motion trades at 8.9x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 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.