There’s a saying that money goes to money, and Bill Gates is proof of this. He is widely considered one of the greatest entrepreneurs and investors in our era. For many years he was the richest person in the world; although he no longer holds this title, he remains one of the richest.
Gates invests in all kinds of businesses, ranging from giant established companies to others just getting off the ground. In February of 2021, he became America’s largest owner of farmland.
Given his exceptional record, investors looking for promising ideas could check out what he’s been buying recently. Of course, there’s no guarantee that going forward his investments will be as lucrative as those he made in the past. Still, they’re as good a place to start as any, and probably better than most.
Gates’ Baby Has Grown Up
In 2002, Gates and then-wife Melinda created the Bill and Melinda Gates Foundation, an organization focused on philanthropy. Gates and fellow billionaire investor Warren Buffett give billions to the foundation each year.
As of November 14, 2022, the Foundation was managing $34 billion, which was divided among 21 positions. Among the top objectives in their investments are retention of capital and growth.
Their largest holding is Microsoft, which accounts for nearly 27% of the entire portfolio. Gates made a fortune in this stock as he co-founded the company and was the major shareholder, but subsequently sold most of his shares. In the last quarter of 2022, he had a change of heart and began buying heavily, purchasing 38.3 million shares at an average price of $247.
Over the past five years, Microsoft’s revenues have grown at a 17.9% compound growth rate; net income did even better, increasing at a 28% compound rate. Other widely-followed financial measures also are very impressive.
The company has more than $100 billion in cash. This will enable it to make long-term investments as well as timely acquisitions that become available. In recent years, Microsoft has been increasing its dividend as well as repurchasing shares. Although the growth rate has been slowing, some analysts believe this could improve when the economy strengthens.
In second place is Berkshire Hathaway, which makes up 23.32% of the portfolio. The foundation has been selling some shares but still owns a huge number of shares; proceeds from the sales were used to purchase shares in Microsoft.
Berkshire is run by Warren Buffett, also considered one of the best investors ever. Since 1965, the compound annual gain in Berkshire has far outdistanced that of the S&P 500. The S&P 500 has increased by a hefty 30,000%. But Berkshire has increased by an amazing 3.6 million percent.
Berkshire’s financial measures also are exceptional. The company has $902 billion in assets, $108 billion in cash, and only $7 billion in debt.
Berkshire owns many established businesses that sell soda, snacks, rails, insurance, underclothing, and financial services, among other products. Berkshire owns significant percentages of Apple, Bank of America, Chevron, Coca Cola, American Express, Kraft Heinz, Occidental Petroleum, and many other well-known names and brands. Berkshire reinvests the profits and dividends from these investments for long term growth.
In third place is Canadian National Railway, which represents 17.42% of the portfolio. The average price of CNI is $93.34, which recently were valued at $5.92 billion. In the last quarter of 2022, the foundation has increased its holdings in this company by 433%.
As its name suggests, Canadian National is an industrial involved in rails and related businesses. It has 19,500 miles of track in Canada and the US, which have generated surprisingly strong growth. Over the past 10 years, revenues per share grew at a 7.36 compound growth rate and free cash flow nearly double that. Also, margins are surprisingly high.
Although the company has approximately $400 million in cash, debt is $15 billion. However, Canadian National has strong cash flow. The dividend has been growing rapidly and so have share buybacks, which means investors’ relative ownership have been increasing.
In fourth place is Waste Management, the leading waste management company in the US; WM makes up 16.61% of the foundation’s portfolio. WM provides a variety of waste removal services for residential, commercial, and municipal customers.
Revenues per share have been growing at a steady 6.68% compound rate over the last five years and so have other financial measures. The company has $137 million in cash, but debt is $13,9 billion. WM too has been increasing dividends and share buybacks since 2001.
In fifth place is Deere & Co, an industrial that makes up 3.85% of the portfolio. DE has 53% of the US tractor market and 60% of the combine market. Revenues per share have been growing by 12.63% over the past five years, and net income by 27%. While DE has $5.5 billion in cash, debt is $46 billion. The company has been repurchasing stock for several decades. In the last five years, the dividend has increased at a 13.7% compounded annual rate.
And in sixth place is Caterpillar, which manufactures construction and mining equipment, engines, and industrial turbines. In the past 10 years, their revenues have not increased. Net income, however, has grown at a 4.56% compound rate. CAT has $6.3 billion in cash; however, debt is $38.1 billion. The company’s dividend over the past decade has grown 8.8% compounded.
The six stocks listed above make up 92% of the foundation’s portfolio, but the top two holdings, Microsoft and Berkshire, make up 50% of the holdings.
These companies have obvious strengths. Exactly why the foundation decided to load up on them now is not clear. However, given Gates’ long-term record, investors will certainly give him the benefit of any doubt.
It must be noted that Gates, like everyone else, is not infallible; other market gurus have very different views and one of those is Michael Burry. On Feb. 1, he tweeted the one-word cryptic message “Sell,” which some interpret that he is worried about a market crash. We’ll leave it to readers to decide for themselves.
As always, caveat emptor. Some very respected names on Wall Street and in Washington are saying that they’ve never seen an economy as difficult to gauge as the current one.
Sources: www.bloomberg.com; www.wtop.com; www.zerohedge.com; YouTube: Big Gates Top 6 Stocks For 2023