Warren Buffett is holding these stocks for the huge free cash flow — with inflation at a 31-year high, you should too
Wall Street pays a ton of attention to company earnings.
But reported earnings are often manipulated through aggressive or even fraudulent accounting methods.
That’s why risk-averse investors need to focus on companies that generate gobs of free cash flow.
Cold, hard cash is real, and can be used by shareholder-friendly management teams to:
Investing legend and Berkshire Hathaway CEO Warren Buffett is famous for his love of cash flow-producing businesses.
Let’s take a look at three stocks in Berkshire’s portfolio that boast double-digit free cash flow margins (free cash flow as a percentage of sales).
Chevron (CVX)
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Leading off our list is oil and gas giant Chevron, which has generated $13.9 billion in free cash flow over the past 12 months and consistently posts free cash flow margins in the ballpark of 10%.
The shares have been hot in recent months on the strong rebound in energy prices, but with inflation continuing to heat up, there might be plenty of room left to run.
Management’s recent initiatives to cut costs and improve efficiency are starting to take hold and should be able to fuel shareholder-friendly actions for the foreseeable future.
Just last week, Chevron announced that it would boost its buyback program to as much as $5 billion a year, about 60% higher than previous guidance.
The stock still offers an attractive dividend yield of 4.7%, which investors can pounce on using some extra cash.
Moody’s (MCO)
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With whopping free cash flow margins above 30%, credit ratings leader Moody’s is next up on our list.
Moody’s shares held up incredibly well during the height of the pandemic and are up nearly 290% over the past five years, suggesting that it’s a recession-proof business worth betting on.
Specifically, the company’s well-entrenched leadership position in credit ratings, which leads to outsized cash flow and returns on capital, should continue to limit Moody’s long-term…
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