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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are two cash-producing companies that leverage their financial strength to beat the competition and one best left off your watchlist.
One Stock to Sell:
Herbalife (HLF)
Trailing 12-Month Free Cash Flow Margin: 6.2%
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Do We Think Twice About HLF?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Anticipated sales growth of 2.1% for the next year implies demand will be shaky
- Revenue growth over the past three years was nullified by the company’s new share issuances as its earnings per share fell by 8.3% annually
At $13.65 per share, Herbalife trades at 4.9x forward P/E. To fully understand why you should be careful with HLF, check out our full research report (it’s free).
Two Stocks to Buy:
KLA Corporation (KLAC)
Trailing 12-Month Free Cash Flow Margin: 27.7%
Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.
Why Do We Love KLAC?
- Annual revenue growth of 14.4% over the last five years was superb and indicates its market share increased during this cycle
- Healthy operating margin of 40.6% shows it’s a well-run company with efficient processes, and its profits increased over the last five years as it scaled
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
KLA Corporation is trading at $188.88 per share, or 35.6x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
AutoZone (AZO)
Trailing 12-Month Free Cash Flow Margin: 8.9%
Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE:AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.
Why Is AZO a Top Pick?
- Aggressive strategy of rolling out new stores to gobble up whitespace is prudent given its same-store sales growth
- Locations open for at least a year are seeing increased demand as same-store sales have averaged 3.4% growth over the past two years
- Highly efficient business model is illustrated by its impressive 18.7% operating margin
AutoZone’s stock price of $2,900 implies a valuation ratio of 17.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating 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 Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.