Warren Buffett is holding these stocks for monstrous free cash flow — why you should too

Warren Buffett thinks these stocks are tremendous free cash flow - why should you?
Wall Street pays a lot of attention to corporate earnings.
But reported earnings are often manipulated through aggressive or even fraudulent accounting methods.
Because of this, risk averse investors need to focus on companies that generate loads of free cash flow.
Cold hard money is real.
And it's used by shareholder-friendly management teams to:
Pay dividends.
Buy back shares.
Let the business grow organically.
Berkshire Hathaway investment legend and CEO Warren Buffett is famous for his love of cash flow companies.
Let's look at three stocks in Berkshire's portfolio that have double-digit free cash flow margins (free cash flow as a percentage of sales).
One - or all - of them might be worth devouring with your change.
Chevron (CVX)
Ken Wolter / Shutterstock
At the top of our list is oil and gas giant Chevron, which has $ 11.3 billion in free cash flow over the past 12 months.
Stocks have rallied in recent months on the back of the sharp rebound in energy prices, but long-term investors should take a look.
The latest management initiatives to reduce costs and increase efficiency are starting to take hold and should lead to shareholder-friendly measures in the foreseeable future.
Last quarter, Chevron announced that it would resume its annual buyback program due to a combination of improved operating performance and lower spending.
Despite the rebound, Chevron stock still offers an attractive dividend yield of 4.9%, which is higher than that of close rivals BP (4.4%) and ConocoPhillips (2.5%).
Of course, if you're still on the fence about energy, some investment apps give you a free share of Chevron or Conoco just to sign up.
Moodys (MCO)
Andrius Zemaitis / Shutterstock
With whopping free cash flow margins of over 30%, the credit rating leader Moody's is next on our list.
Moody's stock has done well during the pandemic, up about 65% over the past two years, suggesting it is a recession-proof business worth wagering on.
The company's entrenched credit rating leadership, which leads to oversized cash flows and ROI, should continue to limit Moody's long-term downside potential.
Moody's generated around $ 2.2 billion in free cash flow for the past twelve months. And in the first half of 2021, the company returned $ 735 million to shareholders through share buybacks and dividends.
Moody’s shares have almost tripled in the last five years and are now trading at around 375 US dollars. But you can get part of the company with a stock trading app that allows you to buy fractions of stocks for as much money as you want to spend.
Coca-Cola (KO)
MAHATHIR MOHD YASIN / Shutterstock
Rounding out our list is beverage giant Coca-Cola, which has generated free cash flow of $ 8.8 billion in the past twelve months and typically delivers free cash flow margins in excess of 20%.
The stock has been sluggish over the past few months, offering long-term investors an enticing entry point. Coca-Cola's long-term investment case will continue to be supported by an unrivaled brand presence, massive economies of scale and still attractive tailwind for geographic growth.
And the company is back to pre-pandemic levels.
In its most recent quarter, Coca-Cola had sales of $ 10.1 billion versus the same period in 2019, mainly driven by an 18% increase in global packaging volume.
Coca-Cola stocks offer a 3.1% dividend yield, which is higher than other beverage giants like Pepsico (2.7%) and Constellation Brands (1.4%).
Socks or stocks?
Even if you disagree with Buffett on these specific stocks, you should still implement his proven strategy of buying quality assets at good prices.
Of course, you can take this value-based approach to anything you do - not just investing.
For example, you can use a free browser application to automatically search for lower prices and coupons when shopping online.
Because let's be honest: Amazon doesn't always have the best prices.
It's free to use and takes seconds to set up.
As Buffett once said, "Whether we're talking about socks or stocks, I like to buy quality goods when they're written off."
This article is for information only and is not intended as advice. It is provided without any guarantee.
In this article:
BRK-A
+ 0.45%
BRK-B
+ 0.79%
STZ
+ 0.30%
STZ-B
-2.27%
PEP
+ 1.27%
KO
+ 0.39%
BP
+ 0.50%
BPAQF
+ 0.61%
POLICE OFFICER
+1.10%
MCO
+ 1.33%
CVX
+ 1.95%

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