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 reinvest wisely to drive long-term success and one best left off your watchlist.
One Stock to Sell:
D.R. Horton (DHI)
Trailing 12-Month Free Cash Flow Margin: 9.6%
One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE:DHI) builds a variety of new construction homes across multiple markets.
Why Do We Steer Clear of DHI?
- Backlog has dropped by 3.6% on average over the past two years, suggesting it’s losing orders as competition picks up
- Earnings per share have contracted by 16% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
D.R. Horton’s stock price of $145.91 implies a valuation ratio of 13.5x forward P/E. Check out our free in-depth research report to learn more about why DHI doesn’t pass our bar.
Two Stocks to Watch:
Nasdaq (NDAQ)
Trailing 12-Month Free Cash Flow Margin: 34.8%
Originally founded in 1971 as the world's first electronic stock market, Nasdaq (NASDAQ:NDAQ) operates global exchanges and provides technology, data, and corporate services that help companies, investors, and financial institutions navigate capital markets.
Why Does NDAQ Catch Our Eye?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 13.8% annual sales growth over the last two years
- Performance over the past two years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue
- ROE punches in at 15.4%, illustrating management’s expertise in identifying profitable investments
Nasdaq is trading at $94.59 per share, or 21.6x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Travelers (TRV)
Trailing 12-Month Free Cash Flow Margin: 22.6%
Tracing its roots back to 1853 when it insured travelers against accidents on steamboats and railroads, Travelers (NYSE:TRV) provides a wide range of commercial and personal property and casualty insurance products to businesses, government units, associations, and individuals.
Why Should TRV Be on Your Watchlist?
- Pre-tax profits increased over the last two years as the company gained some leverage on its fixed costs and became more efficient
- Share buybacks catapulted its annual earnings per share growth to 51.4%, which outperformed its revenue gains over the last two years
- Expected book value per share growth of 19.8% for the next year suggests its capital position will strengthen considerably
At $386.29 per share, Travelers trades at 2.3x forward P/B. 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 Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.