Price levels are rising. In October, consumer prices in the United States jumped 7.7% from a year ago, compared to 9.1% in June, but still at a worrying level.
Soaring inflation has serious consequences for your cash savings.
Luckily, investing legend Warren Buffett has plenty of advice on what to own when consumer prices rise.
In a 1981 letter to shareholders, Buffett outlined two business characteristics that investors should look for when trying to fight inflation: 1) the power to easily raise prices and 2) the ability to undertake more business. activities without having to spend excessively.
Here are four Berkshire farms that largely exhibit these characteristics.
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American Express (AXP)
Last year, American Express demonstrated its pricing power by raising the annual fee for its Platinum card from $550 to $695.
The company should also directly benefit from an inflationary environment.
American Express makes most of its money through remittance fees – merchants are charged a percentage of each Amex card transaction. As the price of goods and services increases, the business has to accept a reduction in larger bills.
Business is booming. In the third quarter, the company’s revenue jumped 24% year-over-year to $13.6 billion.
American Express is Berkshire Hathaway’s fifth largest operation. Owning 151.6 million shares of AXP, Berkshire’s stake is worth around $23.2 billion.
Berkshire also owns shares of American Express competitors Visa and Mastercard, although the positions are much smaller.
American Express shares currently offer a dividend yield of 1.4%.
Coca-Cola (KO)
Coca-Cola is a classic example of a recession-proof company. Whether the economy is booming or struggling, a can of Coke is affordable for most people.
The company’s entrenched market position, massive scale and portfolio of iconic brands – including names like Sprite, Fresca, Dasani and Smartwater – give it considerable pricing power.
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Add in solid geographic diversification – its products are sold in more than 200 countries and territories around the world – and it’s clear that Coca-Cola can thrive through thick and thin. After all, the company went public over 100 years ago.
Buffett has held Coca-Cola in his portfolio since the late 1980s. Today, Berkshire owns 400 million shares of the company, worth around $24.1 billion.
You can lock in a 2.9% dividend yield on Coca-Cola stock at current prices.
Apple (AAPL)
No one who spends $1,600 on a fully-featured iPhone 14 Pro Max would call that a theft. But consumers love to splurge on Apple products anyway.
Earlier this year, management revealed that the company’s active installed hardware base had surpassed 1.8 billion devices.
While competitors offer cheaper devices, millions of users don’t want to live outside the Apple ecosystem. The ecosystem acts as an economic moat, allowing the company to make outsized profits.
It also means that as inflation rises, Apple can pass on higher costs to its global consumer base without worrying too much about a decline in sales volume.
Today, Apple is Buffett’s largest publicly traded holding, accounting for nearly 40% of Berkshire’s portfolio by market value. Of course, the sheer increase in Apple’s stock price is one of the reasons for this concentration. Over the past five years, shares of the tech gorilla have jumped more than 250%.
Apple currently offers a dividend yield of 0.6%.
Herringbone (CVX)
One of Buffett’s big moves in 2022 is the Chevron loadout. According to an SEC filing, Berkshire owned $23.8 billion in the energy giant as of September 30 – a significant jump from its $4.5 billion stake at the end of 2021.
Today, Chevron is Berkshire’s third largest public operation.
It is not difficult to understand why. Even though the oil business is capital intensive, it tends to do very well during periods of high inflation.
Oil – the world’s most traded commodity – has climbed 16% since the start of the year. And the supply shock caused by Russia’s invasion of Ukraine may continue this trend.
High oil prices benefit oil producers. Chevron’s latest quarterly earnings are up 84% year over year. The stock is up more than 50% in 2022.
The company also returns money to investors. Paying quarterly dividends of $1.42 per share, Chevron has an annual yield of 3.0%.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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