If you are an individual investor, perhaps no purchase can give you as warm and fuzzy a feeling as getting in on a stock held by one of the world’s most well known billionaires and paying less for it than he did. The Bill and Melinda Gates Foundation Trust holds 28 stocks with a market value of more than $15.5 billion as of early July 2011. Today, we look at five stocks in that portfolio whose current market price is below the average price paid by the Gates Foundation:
Goldman Sachs (NYSE:GS): Founded in 1869 and catering to corporations, financial institutions, governments, and high-net-worth individuals worldwide, Goldman Sachs provides investment banking, securities, and investment management services. With a market cap of over $69 billion, shares traded down 0.44% to $134.90 at the time of writing, down about 9% from the average price of $148.68 paid by the Gates Foundation. In addition, Goldman Sachs trades at a P/E ratio of 14.7 and offers a 1.00% dividend yield.
In the second quarter, Goldman Sachs was not immune to the battering suffered by many companies in the financial sector. Total revenue was down 39% from the prior quarter and 18% year over year to $7.3 billion.
However, Goldman Sachs is blessed with a well-managed global franchise, strong capital base (as of June 30, 2011, Goldman Sachs’s Tier 1 capital ratio under Basel I was 14.7%, up from 14.6% as of March 31, 2011) and industry leading position in trading and asset management. In my opinion, these factors, coupled with a winning business model and solid fundamentals should enable Goldman Sachs to post good earnings going forward. Despite headwinds in the form of regulatory issues, including lawsuits, I believe that including Goldman Sachs in a well diversified portfolio will provide excellent upside, as well as overall portfolio risk mitigation.
Grupo Televisa S.A. (NYSE:TV): With much of its programming airing in the U.S. on the Univision network, Grupo Televisa is a Mexican multimedia giant serving Latin America and the Spanish-speaking population throughout the world. Shares were down 1.28% to $22.29 at the time of writing, down about 3% from the average price of $23.39 paid by the Gates Foundation. In addition, Grupo Televisa trades with a P/E ratio of 19.5 and offers a 0.60% dividend yield.
While some may see the surge in viewership of Spanish language content in the U.S. and abroad as a huge growth opportunity, in reality, it means that viewers will likely have greater viewing options from more than one provider.
Such is the case at Grupo Televisa. In the second quarter, net income was essentially flat, as the company saw its bottom line negatively impacted by higher spending on client-base expansion, apparently in response to consumers having more television options to choose from. Grupo Televisa also has to compete fiercely with telecom giant Telefonos de Mexico S.A.B. (NYSE:TMX). Further complicating matters is the growing influence of streaming media, making it more difficult for traditional operators to maintain viewership.
With the highly competitive media industry in a constant state of flux with regard to viewer retention and delivery of content, I think it is unlikely that Grupo Televisa will outperform the market over the short term.
Berkshire Hathaway Inc. (NYSE:BRK.A): Led by Warren Buffett, the Oracle of Omaha, this world renowned investment management company operates chiefly in the insurance and reinsurance of property and casualty risks business. Shares were down 1.39%, to $75.98 at the time of writing, also down about 3% from the average price of $79.78 paid by the Gates Foundation.
Historically, Berkshire Hathaway has grown through acquisitions. In March 2011, it agreed to acquire Lubrizoil (LZ) for about $9.7 billion.
Unfortunately, for the past few years, Berkshire Hathaway has been a lackluster performer at best. It is no secret that Berkshire Hathaway’s most significant asset is Warren Buffett, the company’s long time front man. However, Buffett’s advancing age and the question of corporate succession is a significant risk factor for the shares going forward. Given the underwhelming performance of the shares since 2010, and the competitive nature of the insurance industry, I would avoid the shares.
British Petroleum p.l.c. (NYSE:BP): This petrochemical giant, founded in 1889, is chiefly involved in oil and natural gas exploration, field development, and production; midstream transportation, and storage and processing; and marketing and trading of natural gas, including liquefied natural gas, and power and natural gas liquids. Shares were up 0.90% to $46.62 at the time of writing, but down 19% from the average price of $56.86 paid by the Gates Foundation. BP offers a dividend yield of 3.60%.
In the wake of the Gulf of Mexico oil spill disaster, BP is battling to repair not only its reputation, but also its share price. Since hitting a low of $27.05 on June 28, 2010, the company has rallied to recoup some of the losses, but still remains well below the $62.32 close on January 19, 2010.
While BP is a financially and operationally sound entity, uncertainty will linger surrounding potential Gulf of Mexico litigation and the U.S. government's position on BP's U.S. operations.
I do not expect BP to significantly outperform its peers, given the potential risks that continue to surround the company. Perhaps a better energy sector choice would be California-based Chevron Corp. (NYSE:CVX), a company that should exhibit strong growth in the future, as reflected by its targeted volume growth of 20% by 2017.
SemGroup Corp. (NYSE:SEMG): Operating about 2,800 miles of petroleum product transportation, gathering, and distribution pipelines, SemGroup provides gathering, transportation, storage, distribution, blending, marketing, and other midstream services primarily to independent producers, refiners, and other market participants in the U.S., Canada, and the U.K. Shares were down 0.76% to $23.53 at the time of writing, down about 12% from the average price of $26.86 paid by the Gates Foundation.
Since emerging from bankruptcy in December 2009, SemGroup has worked to repair a business decimated by speculation on oil prices in 2008. That hard work paid off in June 2011, when SemGroup said that it planned to create a master limited partnership (MLP) to acquire certain assets from its SemCrude division. The company believes that the MLP structure will provide it with the opportunity to enhance the value of certain of its assets by contributing them to a tax-efficient entity that will be positioned to build additional value through the acquisition of additional midstream assets, either from SemGroup or third parties.
I tend to agree with SemGroup on this point. Proceeds from the creation of an MLP will likely be used to reduce bank debt, lowering Semgroup’s cost of future capital and enhancing its ability to pursue strategic acquisitions. This, coupled with the payment of dividends, should make SemGroup an attractive addition to any energy related portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.