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.
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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.
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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.
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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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