Wall Street pays a lot of attention to company revenue. And now we are in the income statement. But reported revenues are often manipulated by aggressive or even fraudulent accounting methods.
Therefore, risk-averse investors should focus on companies that generate volumes of free cash flow. Cold, hard money is real. And they are used by shareholder-friendly management teams to pay dividends, buy back shares and grow the business organically.
Berkshire Hathaway investment legend and CEO Warren Buffett is known for his love of the cash flow business. Let’s take a look at three stocks in Berkshire’s portfolio that boast double-digit free cash flows (free cash flow as a percentage of sales).
Chevron (CVX)
At the top of the list is oil giant Chevron, which has generated $ 11.3 billion in free cash flow over the past 12 months and has consistently posted free cash flow margins of up to 10%.
Shares have risen in recent months due to a sharp recovery in energy prices, but long-term investors may still want to look at them. Management’s recent initiatives to reduce costs and improve efficiency are beginning to be embraced and should be able to encourage shareholder-friendly action in the foreseeable future.
In the last quarter, Chevron announced that it would resume its annual buyback program due to a combination of improved performance and lower costs.
Despite the rise, Chevron shares still offer an attractive dividend yield of 4.9%, higher than that of close competitors BP (4.4%) and ConocoPhillips (2.5%).
Moody’s (MCO)
With huge free cash flows of over 30%, the leader of the credit rating Moody’s is next on our list.
Moody’s shares performed well during the pandemic, with growth of about 65% over the past two years, suggesting that this is a recession-proof business worth betting on. The company’s well-established leadership position in credit ratings, which leads to excess cash flow and return on capital, must continue to limit Moody’s long-term shortcomings.
Moody’s generated about $ 2.2 billion in subsequent twelve-month free cash flow. And in the first half of 2021, the company returned $ 735 million to shareholders by repurchasing shares and dividends.
Coca-Cola (KO)
Completing our list, beverage giant Coca-Cola, which has produced $ 8.8 billion in its twelve-month free cash flow and typically offers free cash flow margins of more than 20%.
Shares have slowed over the past few months, providing long-term investors with a tempting entry point. Coca-Cola’s long-term investment continues to be supported by the brand’s unparalleled presence, tremendous efficiency and still attractive geographical growth.
And the company is returning to work at pre-pandemic levels. In the last quarter, Coca-Cola reported revenue of $ 10.1 billion, compared to the same period in 2019.
Coca-Cola shares offer a dividend yield of 3.1%, higher than that of other beverage giants such as Pepsico (2.7%) and Constellation Brands (1.4%).
Socks or stocks?
Even if you don’t agree with Buffett on these particular stocks, it may still be a good idea to implement his time-tested strategy of buying high-quality assets at good prices. Of course, you can apply this value-oriented approach to everything you do – not just investing.
As Buffett once said, “Whether we’re talking about socks or stocks, I like to buy quality goods when they’re cheap.”
* The material is analytical in nature and is not advice for buying or selling shares on the stock markets
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