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Bill Gates, the second wealthiest man in the world, is a self-made billionaire with a net worth of above $50 billion. His primary source of fortune was his large stake in Microsoft (MSFT). However, he has been selling his Microsoft shares through automated sales execution program for a while. Mr. Gates sold almost 250 million shares in the last 3 years. The number of Microsoft shares owned by Gates was reduced to 520 million in 2011.

While Bill Gates has been selling his Microsoft shares, the Bill & Melinda Gates Foundation Trust is pretty bullish on other stocks. As of the 2011 third quarter, the Trust had a $15 billion portfolio of equities. According to Edgar Online, Gates favors financials. Financial stocks constitute 46.49% of the holdings, followed by services (24.57%), and consumer companies (10.09%). In the most recent quarter, Bill Gates made some significant transactions. He increased his stake in 3 stocks, while initiating a new stake in M&T Bank (MTB). Here, is a brief analysis of his 4 big buys and 3 big holds:

Big Buys

Company Name

Ticker

Shares Held

% Change

% of Portfolio

O-Metrix

Berkshire

BRK.B

96.2 million

17.5%

46.25%

N/A

Caterpillar

CAT

10.09 million

5.21%

5.85%

5.87

M & T Bank

MTB

0.5 million

NEW

0.22%

6.59

Cemex SAB

CX

6.31 million

8.6%

0.16%

N/A

Big Holds

McDonald’s

MCD

9.87 million

0

5.99%

3.86

Coca Cola

KO

11.68 million

0

5.01%

3.63

Canadian Railway

CNI

8.56 million

0

4.18%

5.52

Data obtained from Finviz/Morningstar and is current as of November 25. You can download the O-Metrix calculator here.

Big Buys

Berkshire Hathaway is the biggest buy Bill Gates initiated in the third quarter. He increased his stake by 17.5%. Berkshire now constitutes almost 50% of Gates’ investment trust. With 96 million shares worth $7 billion, Gates is one of the largest shareholders of Berkshire Hathaway.

One can think of Berkshire as one the largest mutual funds in the world, where the fund’s manager, Warren Buffett, had an amazing record of long-term success. The investment guru became the third wealthiest man in the world through his long-term investment strategy. Berkshire has been a slow, but consistent upside mover. The legendary investor thinks that the markets are cheap and he is looking for a next elephant to be acquired at a deal price. His recent investment in Bank of America (BAC) might be a sweeter deal than the Goldman Sachs (GS) operation.

Caterpillar is another stock, Mr. Gates is bullish about. He increased his stake by more than 5% in the last quarter. Caterpillar’s blowout earnings report pushed the stock 6% higher in a single day. However, the stock retreated back to below $90, due to concerns in global growth.

I think Caterpillar is one of the best ways to play a global recovery. A significant portion of the company’s revenues are derived from emerging markets, where the demand is expected to be higher in the future. It pays an okay yield of 2.1%, and the forward P/E of 9.74 is well-below market average. Based on 11.5% EPS growth estimate, Caterpillar has an O-Metrix score of 5.87. Fair value range is $120 - $141.

M&T Bank is a regional bank, with primary operations in the Northeast United States. The Buffalo, NY, headquartered MTB pays a nifty yield of 4.15%. The stock literally collapsed at early August, falling from $87 to $70 within a week. Since then it has been hovering around $70.

Gates initiated a new purchase of 0.5 million shares in the third quarter. The stock looks cheap with trailing P/E ratio of 9.76 and P/FCF ratio of 6.72. Based on 8.7% EPS growth estimate, it’s O-Metrix score is 6.59. Fair value range is $96 - $163.

Cemex SAB has been one of the biggest losers in 2011. The stock lost 65% since January. While it constitutes a small portion of Gates’ portfolio, he increased his stake by 8.6% in the last quarter.

Cemex is a leading producer of cement and ready-mix concrete products. The global downturn has slashed company’s profits, but similar to Caterpillar, it is a good stock to play global recovery. In 2010, the company earned 34% of its revenues from European operations which explains the loss of investor confidence in the company. Nevertheless, it is trading at a rare P/B ratio of 0.3, and P/CF ratio of 3.7. It is a cheap deal at current prices.

Big Holds

McDonald’s is one the largest holdings in Gates’ portfolio. He invested nearly 6% of his portfolio, and owns 9.87 million shares worth $900 million. McDonald’s is a recession resistant stock. In fact, it emerged as a strong winner, boosting its profits during the recession period and afterwards. Those who purchased McDonald’s in 2004 have more than quadrupled their original investment.

McDonald’s is also a nifty dividend payer with a yield of 3.05%. I think it is a must have for the ultimate retirement portfolio, but the stock looks kind of expensive at a P/B ratio of 7. Surely dividends have room for growth, but the competition is getting tougher in the fast-food industry. Based on a conservative 10% EPS growth estimate, the fair value range for McDonald’s is $79 - $92.

Coca Cola, a Warren Buffet favorite, is also favored by Bill Gates. He invested 5% of his portfolio, and owns 11.68 million shares worth $758 million.

Coca-Cola has been a perfect stock for dividend reinvestment. As Jim Pyke suggests, an initial investment of $24,000 back in 1984 would be worth $1.15 million in 2011. It would have also offered a dividend of above $30,000. Coca-Cola significantly underperformed McDonald’s in 2011, offering a relatively better value now. Based on 7% EPS growth estimate fair value range is $63-$77.

Canadian Railways has been one of the shining stocks of the last decade. Since its dip of $8 in 2000, the stock increased by more than 10-fold, reaching $80 in 2011. Bill Gates is pretty bullish on the stock, owning 8.56 million shares worth $632 million.

Canadian Railways operates a network of near 20,600 route miles in North America. The company is pretty profitable with a gross margin of 37%, and net margin of 24%. Its yield of 1.75% is okay. The stock has still some upside potential. Based on 14% EPS growth estimate, my fair value range is $87 - $112. It’s O-Metrix score of 5.52 is also above the market.

Source: 4 Big Buys And 3 Big Holds By Bill Gates