Billionaire Bill & Melinda Gates’ Foundation Trust’s Top Stock Picks

Bill GatesThe Bill & Melinda Gates Foundation manages much of its assets in a trust to ensure that it will be able to continue its charitable work in the future. The trust, as a large asset manager, meets disclosure requirements and so must file a 13F with the SEC which discloses a number of its positions. Recently the 13F for the second quarter of 2012 was released and we have gone through it to evaluate its top positions.

The trust’s largest holding was its 81.2 million shares of Berkshire Hathaway’s class B stock (NYSE:BRK.B). Warren Buffett donates shares of Berkshire to the foundation, which is responsible for some of the position, but the trust buys other shares as well. Berkshire Hathaway- not a stock that many hedge funds end up buying, possibly out of pride- still has to address succession issues and satisfy investors that Buffett’s lieutenants will prove comparable to him in identifying good investments. For that reason we would advise investors to hold off on the company for now.

The Bill & Melinda Gates Foundation’s second largest holding should also sound familiar to Buffett followers: Coca-Cola (NYSE:KO). The trust reported owning 11.7 million shares of the company, which is known as Buffett’s top holding and a stock that he has made large profits on over the last few decades (find more of Warren Buffett's favorite stocks). The global beverage giant trades at 21 times trailing earnings, and has had fairly stagnant business recently partly because of the rising dollar, but it’s certainly a safe enough investment for a megacap.

McDonalds (NYSE:MCD) was the third largest position reported on the 13F, with the trust owning 9.9 million shares. The company hasn’t experienced much growth recently (again, possibly as its international business is weighed down by currency factors) but it only trades at 16 times trailing earnings; this is a modest P/E for a company with such a strong brand name in an industry which, over the long term, should see growth throughout the world. It also pays a nice dividend yield of 3.2%, making it an interesting blend of value, growth, and income.

The 10.1 million share position in Caterpillar (NYSE:CAT) made it the fourth largest holding for the Bill & Melinda Gates Foundation Trust. We looked at Caterpillar last month and we still see a stock which, yes, is exposed to growth in the U.S. and around the world but reported strong revenue and earnings in its most recent quarter and expects that this year will be a record year. According to analyst projections, the forward P/E for the company is 9 and the five-year PEG is 0.5. We would call it a value stock and would recommend it to investors.

The trust rounded out its top five holdings with Coca-Cola FEMSA (NYSE:KOF), a bottler of Coca-Cola products which operates in many Latin American countries. Coca-Cola FEMSA boasts a $25 billion market capitalization and strong revenue growth. It trades at 28 times trailing earnings, but only 20 times forward estimates and it does benefit from the strength of the Coca-Cola brand. An investment here is a fairly aggressive play on Latin American growth and carries currency as well as political and macroeconomic risks, and so we think that we’d prefer an investment in classic Coca-Cola.

On a broader level, we see two major trends that the foundation thinks are safe investments for its money: fast food (go to McDonalds, buy a burger and fries, wash it down with Coca-Cola products), and growth in the developing world (McDonalds and Coca-Cola again, as well as Caterpillar and a Latin America-focused bottler of Coke products). If an investor wants to avoid the particular stocks that the Gates Foundation is picking, or perhaps wants to look for mid- or small-cap stocks that the large trust can’t develop significant positions in relative to its own size, they should keep these themes in mind. Out of the top five positions in the trust’s portfolio, we would pick Caterpillar for its value and for its long-term growth opportunities.

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