What has billionaire and co-founder of Microsoft Bill Gates been buying lately? He, along with is his wife Melinda Gates, run a foundation called The Gates Foundation, which is centered around charitable works. The foundation controls some $37 billion, and is overseen by Michael Larson. Larson is the Chief Investment Officer for Cascade Investment (see its stock purchases here), which is the the investment vehicle for The Gates Foundation, and manages the Gates’ personal fortune. The foundation, much like fellow billionaire Warren Buffett, likes to focus on high quality, large-cap stocks, and so it is the perfect place to look to find top notch stock picks. Let’s see what the foundation was investing in during the fourth quarter of 2012.
Gates Foundation is cutting its stake in…
The first move that caught my eye was Gates’ sell-off of his entire Costco Wholesale Corporation (NASDAQ:COST)
stake during the fourth quarter. Costco, the retail giant, previously made up 3.5% of Gates’ portfolio during the third quarter.
The company is facing competition from the likes of BJ’s Wholesale and Wal-Mart’s Sam’s Club. The competition and business model make the industry one of “tight” margins. Costco has an operating margin of 2.8% and return on sales of 1.8%, and so the slightest bit of increased pressure hurts the business’ earnings potential. The PEG for Costco is now up to 1.9, and when stacked up against competitors the stock is a bit expensive. Costco trades at 16x cash flow, versus competitors Target (8x), Wal-Mart (9.5x) and Sears (13.5x).
Comcast Corporation (NASDAQ:CMCSA) was another big sell-off, with Gates’ dumping all 1 million shares the foundation owned. The media company’s debt is a big reason for concern, with a long-term debt to equity ratio of 77%.
Comcast managed to lose some 7,000 residential video subscribers last quarter, in part due to pressures from competition at the hands of telecom service providers. These include Verizon and AT&T, as Verizon added 144,000 video subscribers and AT&T added 192,000. Comcast Corporation (NASDAQ:CMCSA
) also appears to have gotten a head of itself with respect to valuation, trading at 1.7x sales, whereas major peer DirecTV is at 1.0x and Dish Network at 1.1x.
New addition to the Gates Foundation…
Notable new addition to Gates’ portfolio includes Siemens AG (ADR) (NYSE:SI), which is now Gates’ 23rd largest publicly owned security. Siemens pays a solid dividend yield of 3.8% on only a 52% payout ratio. What’s more is the stock trades at a 0.4 PEG ratio, cheap by any standard. This is in part due to the fact that investors are not fully appreciating the company’s 5-year expected EPS growth rate of 35%.
Siemens is a leader in many of its segments, which includes industrial automation, power generation and medical equipment. The above-mentioned expected growth should in part be driven by an increased spending in emerging markets, as these countries look to build up their infrastructure. Healthcare is one of the rapidly growing segments for Siemens, which makes up 17% of revenues, and includes products such as hearing instruments, diagnostic imaging systems, and therapy equipment.
Siemens also has a 50-50 joint venture with Nokia to merge its Middle East and Africa businesses together. This will help the two, together, provide increased quality services. A couple of other billionaire investors are also encouraged by Siemens; Ken Fisher of Fisher Asset Management and Jim Simons of Renaissance Technologies are two of the company’s top owners (check out Simons’ newest picks).