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.

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 reinvests wisely to drive long-term success and two best left off your watchlist.

Two Stocks to Sell:

Church & Dwight (CHD)

Trailing 12-Month Free Cash Flow Margin: 17.6%

Best known for its Arm & Hammer baking soda, Church & Dwight (NYSE: CHD) is a household and personal care products company with a vast portfolio that spans laundry detergent to toothbrushes to hair removal creams.

Why Are We Hesitant About CHD?

1. Sales trends were unexciting over the last three years as its 4.9% annual growth was below the typical consumer staples company
2. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
3. Demand will likely fall over the next 12 months as Wall Street expects flat revenue

Church & Dwight’s stock price of $93.13 implies a valuation ratio of 24.7x forward P/E. Dive into our free research report to see why there are better opportunities than CHD.

Baker Hughes (BKR)

Trailing 12-Month Free Cash Flow Margin: 9.9%

Tracing lineage to a 1907 cable tool drill bit patent, Baker Hughes (NASDAQ: BKR) provides equipment and services for oil and gas drilling, production, and transport.

Why Does BKR Worry Us?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6% over the last five years was below our standards for the energy upstream and integrated energy sector
2. High extraction costs and unfavorable asset economics are reflected in its low gross margin of 21.9%

Baker Hughes is trading at $60.39 per share, or 23.9x forward P/E. To fully understand why you should be careful with BKR, check out our full research report (it’s free).

One Stock to Buy:

Amphenol (APH)

Trailing 12-Month Free Cash Flow Margin: 19%

With over 90 years of connecting the world's technologies, Amphenol (NYSE: APH) designs and manufactures connectors, cables, sensors, and interconnect systems that enable electrical and electronic connections across virtually every industry.

Why Are We Backing APH?

1. Annual revenue growth of 35.6% over the last two years was superb and indicates its market share increased during this cycle
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 49% annually, topping its revenue gains
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its improved cash conversion implies it’s becoming a less capital-intensive business

At $126.52 per share, Amphenol trades at 29.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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