Bill Gates was the richest man in America for 15 consecutive years after founding Microsoft (MSFT) and growing it into one of the world’s largest software makers. In other words, Gates is a smart man – he designed the initial technology then played the game well enough to grow it and his wealth to the top financial echelons of the world. Gates may not make the decisions entirely on his own, in fact he may not have much of a voice at all, but his consistency at the top is a testament to those individuals and Gates’ knack for selecting them.
To get a better idea what makes Gates so wealthy, I took a look at the portfolio for the Bill & Melinda Gates Foundation Trust. The trust was opened in June 2009 and is managed by Michael Larson. Prior to then, Larson managed Gates’ interests under the name Cascade Investments. Here is a review of the trust’s top yielding positions.
Waste Management (WM) provides residential, commercial, industrial and municipal waste management services. Over 4.1% of Bill Gates’ portfolio is invested in the company, in a 18,633,672 share position worth $606.7 million. As of December 2, WM was trading at $31.23 a share with a one-year target estimate of $35.00 and a $1.36 dividend (4.40% dividend yield). Its outlook isn’t bad – analysts estimate its earnings growth over the next five years at 10.00% per annum compared to expectations of 16.86% per annum for the industry. WM also has decent quarterly revenue growth at 8.90%, compared to rival Casella Waste Systems (CWST) with its -7.90% quarterly revenue growth or Republic Services (RSG) at 2.60%. Right now, I recommend this stock as a hold. It is trading at 15.22 times its earnings and I think that is a little high given its modest outlook.
BP Plc (BP) is an oil and gas company. It engages in the exploration, production, refining and marketing of crude oil and natural gas. BP also has a segment devoted toward aluminum products, carbon capture and storage, and alternative energy sources, like wind, solar and biofuels. Gates owned 7,133,000 shares in the company at the end of the third quarter, in a position valued at $257.3 million or just over 1.75% of his total portfolio. BP was trading at $43.29 at the close of business on December 2, with a one-year target estimate of $53.07 and a $1.68 dividend (3.90% dividend yield).It has stronger quarterly revenue growth at 35.10% than many of its competitors, like Chevron (CVX) which has just 26.20% revenue growth or Exxon (XOM) with 31.5%. Plus, BP is trading at just 5.99 times its earnings. I like BP but it is going through a variety of legal issues stemming from the Deepwater Horizon spill. BP was able to settle out of court with Anadarko (APC) but it still has to face charges levied by the U.S. government. That said, I recommend BP as a buy. The numbers are right – The dividend and the upside are there but a large negative verdict could swing things dramatically.
M&T Bank (MTB) is a commercial and retail bank operating regionally in the U.S., serving the upper Mid-Atlantic region, and some international operations, namely an office in Toronto, ON and another in George Town, Cayman Islands. Gates initiated a new position worth 500,000 shares, or roughly $34.95 million, in the company at the end of the third quarter. As of December 2, MTB was trading at $73.88 with a one-year target estimate of $84.20 and a $2.80 dividend (3.80% dividend yield). It is priced at just 10.69 times its current earnings and 10.66 times its forward earnings. I recommend MTB as a hold. It has decent upside and strong earnings growth estimates. Analysts predict its earnings will increase by 8.90% per annum over the next five years, just a little less than the 9.17% predicted for the industry.
McDonalds (MCD) is a worldwide fast food restaurant chain. Gates owned 9,872,500 shares in the company at the end of the third quarter. His position in the company is valued at $867 million and makes up 5.9% of his total portfolio. As of December 2, MCD was trading at $95.70 a share with a one-year target estimate of $100.90 and a $2.80 dividend (2.90% dividend yield). It is priced at 18.77 times its current earnings, 16.76 times its future earnings. One thing about MCD’s business is that it is the type of business that is not affected very much by the economy because of its low price point but it is also vulnerable to changes in consumer preferences, especially as health issues become increasingly prevalent. MCD has made some moves in recent times to address those concerns, like offering apple slices as a side order option, offering milk as a beverage option or launching a range of salads, and in turn, it is a relatively steady earner. I like the stock for its consistency and its dividends, and recommend it as a buy.
Coca-Cola (KO) is an international non-alcoholic beverage company. KO may be well-known for its namesake brand “Coca-Cola” but it also manufactures and distributes a range of beverages, like Dasani water and Powerade. Gates had 11,682,000 shares in KO at the end of the third quarter, in a position worth roughly $789.24 million or 5.38% of his portfolio. KO was trading at $66.38 at the close of business on December 2, with a one-year target estimate of $75.23 and a $1.88 dividend (2.80% dividend yield). I like KO a lot and recommend it highly as a buy. It is trading at 12.20 times its earnings, lower than rival PepsiCo (PEP), which is trading at 16.11 times its earnings. It also has greater quarterly growth (45.40% vs. PEP’s 13.30%). Also, KO’s business isn’t very affected by the economy, as evidenced by its low beta of 0.49.
Wal-Mart (WMT) is a discount department store chain. Gates owned 9,753,000 shares in the company at the end of the third quarter. His position in WMT is worth around $506.2 million or 3.45% of his portfolio. WMT was trading at $58.09 a share as of December 2, with a one-year target estimate of $61.65 a share and a $1.46 dividend (2.50% dividend yield). It is priced at 12.29 times its earnings. Rivals Costco (COST) and Target (TGT) are trading at 26.27 and 12.31 times their earnings respectively. It also has decent quarterly revenue growth at 8.10%. WMT is also very consistent. Its earnings increased 8.79% per annum over the last five years and are expected to increase by 9.56% per annum over the next five years. On the downside, industry expectations for earnings growth are much higher at 14.41%. At its current price, there isn’t enough upside for my tastes, but I would recommend it as a buy at under $56.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.