1 Cash-Producing Stock for Long-Term Investors and 2 We Avoid

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 face some trouble.

Two Stocks to Sell:

Deere (DE)

Trailing 12-Month Free Cash Flow Margin: 14.2%

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 Think Twice About DE?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 12.3% annually over the last two years
2. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $663.27 per share, Deere trades at 34.7x forward P/E. Dive into our free research report to see why there are better opportunities than DE.

Taylor Morrison Home (TMHC)

Trailing 12-Month Free Cash Flow Margin: 9.6%

Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE:TMHC) builds single family homes and communities across the United States.

Why Does TMHC Worry Us?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 33.6% declines over the past two years
2. Projected sales decline of 17.2% for the next 12 months points to a tough demand environment ahead
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.8% annually

Taylor Morrison Home’s stock price of $67.91 implies a valuation ratio of 13.1x forward P/E. Check out our free in-depth research report to learn more about why TMHC doesn’t pass our bar.

One Stock to Buy:

Palantir Technologies (PLTR)

Trailing 12-Month Free Cash Flow Margin: 50.7%

Named after the all-seeing stones in "Lord of the Rings," Palantir Technologies (NASDAQ:PLTR) develops software platforms that help government agencies and enterprises integrate, analyze, and operationalize their data for decision-making.

Why Are We Bullish on PLTR?

1. Average billings growth of 59.5% over the last year enhances its liquidity and shows there is steady demand for its products
2. Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
3. Robust free cash flow margin of 50.7% gives it many options for capital deployment

Palantir Technologies is trading at $134.55 per share, or 47.8x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.

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