1 Cash-Producing Stock for Long-Term Investors and 2 to Be Wary Of

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.

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 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:

Target (TGT)

Trailing 12-Month Free Cash Flow Margin: 4.2%

With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.

Why Are We Wary of TGT?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 28%
3. Subpar operating margin of 5.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats

At $94.88 per share, Target trades at 10.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than TGT.

Resideo (REZI)

Trailing 12-Month Free Cash Flow Margin: 5.4%

Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.

Why Does REZI Fall Short?

1. Sales trends were unexciting over the last two years as its 3% annual growth was below the typical industrials company
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

Resideo’s stock price of $15.46 implies a valuation ratio of 6.5x forward price-to-earnings. If you’re considering REZI for your portfolio, see our FREE research report to learn more.

One Stock to Watch:

Qualcomm (QCOM)

Trailing 12-Month Free Cash Flow Margin: 31.3%

Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.

Why Are We Fans of QCOM?

1. Healthy operating margin of 24.6% shows it’s a well-run company with efficient processes
2. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its recently improved profitability means it has even more resources to invest or distribute
3. Industry-leading 52.5% return on capital demonstrates management’s skill in finding high-return investments

Qualcomm is trading at $137.89 per share, or 11.8x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.