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.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here is one cash-producing company that excels at turning cash into shareholder value and two best left off your watchlist.
Two Stocks to Sell:
Allegro MicroSystems (ALGM)
Trailing 12-Month Free Cash Flow Margin: 9.3%
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ: ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Why Are We Wary of ALGM?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Already-low operating margin of 2% fell over the last five years, and the smaller profit dollars make it harder to react to unexpected market developments
- Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 8.1%
At $42.49 per share, Allegro MicroSystems trades at 37.6x forward P/E. If you’re considering ALGM for your portfolio, see our FREE research report to learn more.
Viavi Solutions (VIAV)
Trailing 12-Month Free Cash Flow Margin: 3.3%
Once known as JDS Uniphase before its 2015 rebranding, Viavi Solutions (NASDAQ: VIAV) provides testing, monitoring and assurance solutions for telecommunications, cloud, enterprise, military, and other critical networks and infrastructure.
Why Are We Hesitant About VIAV?
- Sales trends were unexciting over the last five years as its 3.4% annual growth was below the typical industrials company
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Viavi Solutions is trading at $35.78 per share, or 26.2x forward P/E. Read our free research report to see why you should think twice about including VIAV in your portfolio.
One Stock to Watch:
Merck (MRK)
Trailing 12-Month Free Cash Flow Margin: 21.5%
With roots dating back to 1891 and a portfolio that includes the blockbuster cancer immunotherapy Keytruda, Merck (NYSE: MRK) develops and sells prescription medicines, vaccines, and animal health products across oncology, infectious diseases, cardiovascular, and other therapeutic areas.
Why Are We Fans of MRK?
- Dominant market position is represented by its $65.77 billion in revenue, which creates significant barriers to entry in this highly regulated industry
- Adjusted operating profits and efficiency rose over the last two years as it benefited from some fixed cost leverage
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Merck’s stock price of $129.71 implies a valuation ratio of 21.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
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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.
