Bill Gates is the 4th richest person in the world; his net worth of ~$129 billion is a massive amount of money, notes Bob Ciura, editor of Sure Dividend.
Not surprisingly, the Bill & Melinda Gates Foundation has a huge investment portfolio above $17 billion according to a recent 13F filing. That kind of wealth is something the vast majority of us can only dream of.
However, there is one similarity between the everyday investor and the wealthiest person on the planet. We’re all looking for good stocks to buy and hold for the long-term. That is why it is useful to review the stock holdings of the Bill & Melinda Gates Foundation.
#1—Microsoft (MSFT)
Dividend Yield: 1.0%
Percentage of Bill Gates’ Portfolio: 27.9%
Microsoft Corporation, founded in 1975 and headquartered in Redmond, WA, develops, manufactures and sells both software and hardware to businesses and consumers. Microsoft is a mega-cap with a market capitalization of $1.8 trillion. Its offerings include operating systems, business software, software development tools, video games and gaming hardware, and cloud services.
In late October, Microsoft reported financial results for the first quarter of fiscal 2023. The company grew its revenue by 11% year-over-year. Sales of Azure, Microsoft’s high-growth cloud platform, grew 35%. However, adjusted earnings-per-share decreased by -13%, from $2.71 to $2.35, mostly due to a strong dollar, which reduced earnings from international markets, as well as production shutdowns in China and weak trends in the PC market.
Microsoft has a wide moat in the operating system & Office business units and a strong market position in cloud computing. It is unlikely that the company will lose market share with its older, established products, whereas cloud computing is such a high-growth industry that there is enough room for growth for multiple companies. Microsoft has a renowned brand and a global presence, which provides competitive advantages.
The markets Microsoft addresses continue to grow, with cloud computing being the most compelling. This means that Microsoft will most likely be able to grow its top line even without any market share gains. Given also margin expansion, we expect 10% average annual growth of earnings-per-share over the next five years.
#2—Berkshire Hathaway (BRK.B)
Dividend Yield: N/A (Berkshire Hathaway does not currently pay a dividend)
Percentage of Bill Gates’ Portfolio: 23.32%
Berkshire Hathaway stock is the largest individual holding of the Gates Foundation’s investment portfolio, and it is easy to see why. It’s safe to say the money is in good hands. Berkshire, under the stewardship of Warren Buffett, grew from a struggling textile manufacturer, into one of the largest conglomerates in the world.
Today, Berkshire is a global giant. It owns and operates dozens of businesses, with a hand in nearly every major industry including insurance, railroads, energy, finance, manufacturing, and retailing. It has a market capitalization above $600 billion.
Berkshire can be thought of in five parts: wholly owned insurance subsidiaries like GEICO, General Re and Berkshire Reinsurance as well as wholly-owned non-insurance subsidiaries like Dairy Queen, BNSF Railway, Duracell, Fruit of the Loom, NetJets, Precision Cast Parts and See’s Candies.
Berkshire has shared control businesses like Kraft Heinz (KHC) and its marketable publicly-traded securities including significant stakes in companies like American Express (AXP), Apple (AAPL), Bank of America (BAC), Coca-Cola (KO) and Wells Fargo (WFC).
Berkshire doesn’t pay a dividend to shareholders. Buffett and his partner Charlie Munger have always contended that they can create wealth at a higher rate than the dividend would provide to shareholders. While Berkshire stock may not be attractive for investors who want dividend income, there are few companies that have a track record nearly as great as Berkshire’s.
#3—Canadian National Railway (CNI)
Dividend Yield: 1.4%
Percentage of Bill Gates’ Portfolio: 19.57%
Canadian National Railway is the only transcontinental railroad in North America. It has a network of approximately 20,000 route miles and connects three coasts: the Atlantic, the Pacific and the Gulf of Mexico. It handles over $200 billion worth of goods annually and carries over 300 million tons of cargo.
On October 25th, 2022, Canadian National Railway announced third quarter results for the period ending September 30th, 2022. Revenue grew 14.3% to $3.32 billion, beating estimates by $147.1 million. Adjusted earnings-per-share of $1.57 compared to $1.23 in the prior year and was $0.09 higher than expected.
Canadian National Railway’s operating ratio improved 550 basis points to 57.2% year-over-year and was considerably better than the 66.6% and 59.3% figure that the company had in the first and second quarter of the year, respectively. Revenue ton miles (RTM) increased 5% to 58.5 billion.
Canadian National Railway has grown its earnings at an approximately 6% average annual rate during the last decade, but it has slowed to a 4.4% annual growth rate in the last five years. Still, we believe that the company is capable of delivering more than 6% growth moving forward.
More specifically, we are forecasting 7% long-term growth in per-share earnings for company due to increased revenues and share repurchases. Applying a 7% growth rate to our 2022 earnings-per-share estimate of $5.94 allows us to compute a 2027 per-share-earnings estimate of $8.33.
#4—Waste Management (WM)
Dividend Yield: 1.6%
Percentage of Bill Gates’ Portfolio: 16.34%
Waste Management is the embodiment of a company with a wide economic “moat” — a term popularized by Warren Buffett to describe a strong competitive advantage that protects a company from the full ravages of market competition. Waste Management operates in waste removal and recycling services. This is a highly concentrated industry, with only a few companies controlling the majority of the market.
On October 26th, 2022, Waste Management released Q3 2022 results for the period ending September 30th, 2022. For the quarter, the company generated revenue of $5.08 billion, an 8.8 % increase compared to Q3 2021. Adjusted net income equaled $645 million or $1.56 per share compared to $530 million or $1.26 per share in Q3 2021.
During Q3, Waste Management repurchased $541 million of common stock. The company also returned $267 million to shareholders in the form of cash dividends. We expect earnings to continue to be strong in 2022 as the company gets back to growth. In addition, we are still forecasting 4% annual earnings growth over the next five years, implying the expectation for $6.96 in earnings-per-share over the next five years.
