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 is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.

Two Stocks to Sell:

Quanex (NX)

Trailing 12-Month Free Cash Flow Margin: 4.8%

Starting in the seamless tube industry, Quanex (NYSE: NX) manufactures building products like window, door, kitchen, and bath cabinet components.

Why Are We Cautious About NX?

1. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 19.5 percentage points
2. Earnings per share fell by 20.1% annually over the last two years while its revenue grew, partly because it diluted shareholders
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Quanex’s stock price of $21.37 implies a valuation ratio of 11.5x forward P/E. To fully understand why you should be careful with NX, check out our full research report (it’s free).

CTS (CTS)

Trailing 12-Month Free Cash Flow Margin: 16.2%

With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE: CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.

Why Are We Hesitant About CTS?

1. 2.7% annual revenue growth over the last five years was slower than its business services peers
2. Subscale operations are evident in its revenue base of $564.3 million, meaning it has fewer distribution channels than its larger rivals
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

CTS is trading at $63.26 per share, or 24.4x forward P/E. Read our free research report to see why you should think twice about including CTS in your portfolio.

One Stock to Watch:

Crane NXT (CXT)

Trailing 12-Month Free Cash Flow Margin: 13.6%

Born from a corporate transformation completed in 2023, Crane NXT (NYSE: CXT) provides specialized technology solutions for payment processing, banknote security, and authentication systems for financial institutions and businesses.

Why Could CXT Be a Winner?

1. Sales pipeline is in good shape as its backlog averaged 17.1% growth over the past two years
2. Estimated revenue growth of 11% for the next 12 months implies its momentum over the last two years will continue
3. Management team has demonstrated it can invest in profitable ventures through its 12.6% five-year return on capital

At $51.46 per share, Crane NXT trades at 11.6x 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

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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.