Global stock markets are in a tight spot. With the 10-year Treasury note yield at a near-decade high and interest rates continuing to climb, the risk premium associated with owning stocks, relative to other asset classes, is in unfavorable territory right now. Stock investors, in turn, ought to be exceptionally choosy in this dynamic environment. Fortunately, Berkshire Hathaway CEO (BRK.A -0.76%) (BRK.B -0.69%) Warren Buffett has provided a roadmap of sorts for other stock investors.
Which Warren Buffett stocks are capable of overcoming these headwinds? Here are three top Berkshire Hathaway holdings that qualify as "all-weather" stocks because of their economically insensitive business models, wide competitive moats, and stellar free cash flows.
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1. Apple
Apple (AAPL -0.35%) made up a whopping 44.1% of Berkshire's stock holdings at last count, and it's not hard to see why. The tech giant sports one of the highest degrees of brand loyalty within the smartphone, tablet, and personal-computer markets. As a result of its nearly insurmountable economic moat, Apple's free cash flow has gone parabolic over the past two decades. Buffett, like most dyed-in-the-wool value investors, strongly favors companies with growing free cash flows, because it means their underlying business is on solid financial ground.
AAPL Free Cash Flow data by YCharts
Apple hasn't rested on its laurels. It has leveraged this dominant position in devices to build out other top franchises in software, as well as a wide variety of services. For example, Apple recently announced plans to roll out its own version of buy now, pay later, a feature that is likely to further strengthen brand loyalty within its user base.
Apple's ability to charge healthy premiums on devices and expand into lucrative new markets have allowed the company to overcome the bearish tone in equities of late. As this situation is unlikely to change anytime soon, investors may want to take a cue from Buffett on this top tech play.
2. Coca-Cola
Berkshire has held Coca-Cola (KO) in its diversified portfolio since 1988. The beverage giant's long standing as a top Berkshire holding can be attributed to three key features:
- Coca-Cola sports one of the widest competitive moats in the world. As a direct result, Coke's quarterly earnings are as reliable as clockwork.
- The beverage titan pays out a healthy 2.97% dividend yield at current levels, which is substantially higher than the 1.76% average yield among dividend-paying stocks listed on the benchmark S&P 500.
- Coke has raised its dividend for a whopping 61 straight years. Equally as important, this streak is under no threat of coming to an end anytime soon. After all, Coke's free cash flow has grown by a healthy 14% over the past five years, and its top line is projected to rise by a notable 5.2% next year.
All told, Coke has proved that it can earn money in every type of economy. This simple fact makes its stock an outstanding buy in this uncertain economic environment.
3. Occidental Petroleum
Since 2019, Berkshire has been loading up on Occidental Petroleum (OXY -0.15%) stock. At last count, Buffett's holding company owned 23.1% of the chemical and energy company's outstanding shares. What's more, Berkshire has regulatory clearance to take a 50% stake in Occidental. Berkshire, in turn, is highly likely to continue buying the oil company's shares in 2023 and beyond.
What's the appeal? Occidental is a strong buy for the three clear-cut reasons:
- Occidental's shares trade at a forward earnings yield of 9.2%. That's a dirt-cheap valuation for a large-cap chemical and energy company.
- In 2022, the company posted a record $12.5 billion in net income, allowing it to retire $10.5 billion debt. Buffett, like every value investor, is a big fan of improving fundamentals.
- Recently, Occidental boosted its dividend by a noteworthy 38%, reflecting its improving balance sheet and healthy long-term outlook. Now, Occidental's meager 1.15% dividend yield isn't anything to write home about, but its ultra-low payout ratio of 4.2% implies that additional increases to the payout may be on the way.
Bottom line: Occidental screens as a deeply undervalued dividend stock. As such, investors may want to follow Buffett's lead on this top value play.
