Warren Buffett is holding these stocks for the massive free cash flow — with inflation near 40-year highs, you should too

Warren Buffett owns these stocks for their massive free cash flow -- and with inflation near 40-year highs, so should you
Wall Street pays a lot of attention to corporate earnings.
But reported profits are often manipulated through aggressive or even fraudulent accounting methods.
Because of this, risk-averse investors need to focus on companies that generate massive amounts of free cash flow.
Cash is real and can be used by shareholder-friendly management teams to:
Pay dividends to fight inflation.
buy back shares.
Grow the business organically.
Investment legend and Berkshire Hathaway CEO Warren Buffett is famous for his love of cash-flow producing companies.
Let's take a look at three stocks in Berkshire's portfolio that have double-digit free cash flow margins (free cash flow as a percentage of sales).
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Chevron (CVX)
First on our list is oil and gas giant Chevron, which has generated trailing-12-month free cash flow of $21.1 billion and consistently posted free cash flow margins in the 11% range.
Stocks have been hot over the past few months on the strong rebound in energy prices, but as inflation continues to pick up, there could be plenty of room left.
Management's recent initiatives to cut costs and increase efficiency are beginning to take hold and should drive shareholder-friendly measures for the foreseeable future.
In March, Chevron announced it would double its share buybacks to up to $10 billion a year, promising shareholders would see the benefits of high oil prices.
The stock continues to offer an attractive dividend yield of 3.4%.
Moody's (MCO)
With a whopping free cash flow margin of over 30%, rating leader Moody's is next on our list.
Despite recent weakness, Moody's stock is up 145% over the past five years, suggesting it's a relatively recession-resistant company worth betting on.
In particular, the company's well-established leadership in credit ratings, which translates into inflated cash flows and returns on capital, should continue to limit Moody's long-term downside
Moody's generated about $1.8 billion in free cash flow over the past 12 months. And in 2021, the company returned $1.2 billion to shareholders through stock repurchases and dividends.
Moody's has a dividend yield of 1.0%.
Coca-Cola (KO)
Rounding out our list is beverage giant Coca-Cola, which has generated $7 billion in trailing-12-month free cash flow and consistently delivers free cash flow margins in excess of 20%.
The stock has seen many ups and downs over the past few months, but patient investors should try to take advantage of the near-term uncertainty. Coca-Cola's long-term investment case continues to be supported by an unrivaled brand presence, massive efficiencies of scale, and still attractive geographic growth momentum.
And the company is operating at pre-pandemic levels again.
In its most recent quarter, Coca-Cola had revenue of $10.5 billion, up 16% from the year-ago period, primarily due to an 8% increase in general cargo volume.
Coca-Cola stock offers a 2.9% dividend yield.
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This article is informational only and should not be construed as advice. It is provided without any guarantee.

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