Price levels are rising. US consumer prices rose 7.7% in October from a year earlier – down from 9.1% in June, but still worryingly high.
Rising inflation has serious consequences for your savings.
Fortunately, investing legend Warren Buffett has plenty of advice on what to own when consumer prices rise.
In a 1981 letter to shareholders, Buffett highlighted two business traits that investors should look for when fighting inflation: 1) the ability to easily raise prices and 2) the ability to do more without overspending.
Here are four Berkshire holdings that mostly boast these traits.
don’t miss it
American Express (AXP)
Last year, American Express demonstrated its pricing power as it raised its Platinum Card annual fee from $550 to $695.
The company is also poised to benefit directly from the inflationary environment.
American Express makes most of its money from discount fees – merchants are charged a percentage of each Amex card transaction. As the price of goods and services increases, the company receives a cut of larger bills.
Business is growing rapidly. In the third quarter, the company’s revenue increased by 24% year-on-year and reached $13.6 billion.
American Express is Berkshire Hathaway’s fifth largest holding. Berkshire’s stake, which owns 151.6 million shares of AXP, is worth about $23.2 billion.
Berkshire also owns shares of American Express rivals Visa and Mastercard, although the positions are much smaller.
American Express stock currently offers a 1.4% dividend yield.
Coca-Cola is a classic example of a recession-proof business. Whether the economy is thriving or struggling, a can of Coke is affordable for most people.
The company’s strong market position, massive scale and portfolio of popular brands, including names like Sprite, Fresca, Dasani and Smartwater, give it plenty of pricing power.
Read more: When you shop online, you’re probably already paying – grab this free tool before Black Friday
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 more than 100 years ago.
Buffett has held Coca-Cola in his portfolio since the late 80s. Today, Berkshire owns 400 million shares of the company, worth about $24.1 billion.
At current prices, you can get a 2.9% dividend on Coca-Cola stock.
No one is going to call $1,600 a steal for a fully stocked iPhone 14 Pro Max. But consumers love to buy Apple products anyway.
Earlier this year, management announced that the company’s active installed hardware base exceeded 1.8 billion devices.
Although competitors offer cheaper devices, millions of users do not want to live outside the Apple ecosystem. The ecosystem acts as an economic moat that allows the company to generate huge profits.
It also means that as inflation rises, Apple can pass on higher costs to its global consumer base without worrying too much about declining sales.
Today, Apple is Buffett’s largest public stock holding, representing about 40% of Berkshire’s portfolio by market value. Of course, the sharp increase in the price of Apple’s shares is one of the reasons for this concentration. Shares of the tech gorilla have risen more than 250% in the past five years.
Apple currently offers a dividend yield of 0.6%.
One of Buffett’s big moves in 2022 is to unload Chevron. Berkshire owned $23.8 billion of the energy giant as of Sept. 30 — a significant increase from its $4.5 billion stake at the end of 2021, according to an SEC filing.
Today, Chevron represents the third largest public holding company in Berkshire.
It is not difficult to understand why. Although the oil business is capital intensive, it tends to perform very well during periods of high inflation.
Oil, the world’s most traded commodity, has risen by 16% so far. And the supply shock caused by Russia’s intervention in Ukraine could ensure that this trend continues.
Strong oil prices hurt oil producers. Chevron’s latest quarterly profit was up 84% year over year. Shares are up more than 50% in 2022.
The company also returns cash to investors. Paying a quarterly dividend of $1.42 per share, Chevron has an annualized yield of 3.0%.
Then read what
‘Think you’re fired’: Suze Orman’s 3 tough love tips to prepare for the coming recession
‘They don’t live their lives to impress’: Here are the top car brands that wealthy Americans with $200,000+ drive the most — and why you should, too
Morgan Stanley: Rolex, Patek Philippe and Audemars Piguet watch prices will continue to fall due to the flood of supply – but these 3 real assets remain scarce and desirable.
This article provides information only and should not be construed as advice. Provided without any warranty.