While Bill Gates is known best for founding Microsoft (MSFT), he is also known for being a billionaire. The latter makes him an investor worth watching, as he has the resources to hire the best in the business. Below we highlight a few of his recent stock picks that may be worth considering for your portfolio, too.
Berkshire Hathaway (BRK.B) – BRK.B is down modestly for the year to date, compared to the overall stock market that is flat for the year and the insurance industry index that is down about 12% for the year. BRK.B, run by Warren Buffett, is a stock that has always fascinated analysts and investors. It is unique in that it is a holding company of companies, not all public. Most people typically determine that BRK.B is undervalued relative to its assets and cash flow. This is not surprising, as a lack of clear comparisons and its diversity of holdings result in uncertainty, which results in a discounted valuation.
With all of the market turmoil recently, Mr. Buffett has been putting cash to work-- actively buying Lubrizol (LZ) and investing $5 billion in Bank of America (BAC). In fact, Mr. Buffett invested more in the recent quarter than in any quarter in the last 15 years. These holdings add to the diverse portfolio of companies in BRK.B that are showing good operating growth. Bill Gates now owns 81,859,555 shares of BRK.B as of October, which is a significant addition when compared to the 73,997,400 shares he held through 2010. I like BRK.B for its quality, management discipline, and diversification, and would recommend it as part of any long-term portfolio.
Cemex (CX) – CX is down over 50% year to date, while the general domestic stock market is roughly flat and the Mexico equity index is down about 9%. CX and other global construction oriented companies have been hit hard by the global economic downturn. However, with infrastructure projects slated as part of economic stimulus programs, CX may be well positioned to benefit. Investors have shunned speculative names in the recent global downturn, leaving emerging markets and other interesting long-term opportunities in favor of more short-term stability in domestic markets. CX and other names in the emerging markets are down partially due to this effect. However, the region is expected to prosper, including Mexico-- that has the largest amount of trade with the U.S. of any of the emerging market countries.
CX is an aggressive, and potentially timely, way to play this theme. While CX’s balance sheet shows considerable debt, it also has over $13 per share of net equity (book value). CX is also inexpensive relative to sales, with the stock trading at 0.34 times sales. Investors should be mindful that CX is at a crossroads financially, and is starting to sell assets to meet obligations. However, some investors, like Bill Gates, see opportunity and are adding CX at these levels for speculation on a turnaround of its business. Bill Gates purchased a new holding of 5,813,953 shares of CX in the latest quarter.
Comcast (CMCSK) – Comcast, along with the telecom sector, is up more than the market year-to-date. CMCSK has been a popular stock with investors, with its subscription business model in consistently growing cable television. There have been company specific issues with CMCSK that now seem behind it, allowing the focus to be on the opportunity ahead. Investors have been enamored with CMCSK because of the potential for capturing the huge consumer media buying opportunity within the home from the television. This has been an investment theme that has taken a long time to play out, but we may now be finally starting to see this hope become a reality. Apple (AAPL), with its successful line of consumer electronics, now has the product line-up that combines with cable delivery of the content, enabling consumers to access and purchase movies, music and other popular content from their living rooms.
CMCSK trades at around 16 times earnings, 1.2 times sales, and 1.3 times book value. CMCSK is still a bargain, and appears to be undervalued by these indicators on a historical basis. However, for investors willing to have long-term market exposure, CMCSK is one that has market-beating potential due to its strong position within the attractive consumer electronics and media theme. Bill Gates made a new purchase of 944,550 shares of CMCSK in the latest quarter.
Coca Cola (KO) – KO is up better than the market year to date, along with the rest of the consumer staples sector. A perennial favor of investors, KO is a well-run company with an easy to understand story. KO is a global consumer products leader, competing with Pepsi (PEP) and many other global consumer brands, both old and new. KO continues to dominate many beverage categories within the highly competitive global beverage market. While there are current consumer trends away from soft drinks, KO remains competitive within the new market segments, while still dominating the soda market. The result is a strong and growing business from a broadening global consumer product line.
KO is in a unique position to capture these opportunities as many countries have specific local cultural tastes that require product and brand customization, particularly in India and the Russian Federation. KO trades at 16 times forward earnings, 3.3 times sales, and 4.6 times book value. This valuation puts KO at the high end of its historic valuation range, a function of the quality of company, and investor demand for the safety of the consumer staple brand during uncertain economic times. Its 2.9% dividend yield helps to make the KO story even more appealing. While somewhat pricey, KO should be treated as a core holding, and one that should be added opportunistically. Bill Gates added about 10% to his stake, with 11,147,000 shares as of the latest quarter compared to 10,182,000 in the prior year.