The Bill and Melinda Gates Foundation Trust is a long term investor whose capital is used to fund ongoing foundation activities and invested to sustain the foundation for a long period of time. It is one of the investors we track in our database of quarterly 13F filings, which we use to help us develop investment strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). Even though its most recent 13F filing discloses many of its long equity positions from the end of March, the trust actually hadn’t changed most of these positions during the first quarter of 2013 and so we would assume that it still owns quite a bit of what had been its largest holdings at that time. Read on for our quick take on its top five picks or check out the full list of stocks the trust reported owning.
The trust, which is managed by Michael Larson, reported a position of almost 81 million Class B shares of Berkshire Hathaway Inc. (NYSE:BRK.B). Gates and Berkshire Hathaway Inc. (NYSE:BRK.B) head Warren Buffett have bonded on a number of topics and issues, and apparently the trust is a strong believer that both Buffett and his hand-picked successors will prove able to identify attractive investment opportunities over the long term even given their massive size (find Buffett’s favorite stocks). In addition to the succession at Berkshire Hathaway Inc. (NYSE:BRK.B), however, investors may also be concerned with the premium P/B ratio of 1.5.
Latin American Coca-Cola bottler and distributor Coca-Cola FEMSA, S.A.B. de C.V. (ADR) (NYSE:KOF) was another of the foundation’s top picks with the filing disclosing ownership of 6.2 million shares. Coca-Cola Femsa is even less sensitive to the broader economy than its related company, with a beta of only 0.1. However, it too carries something of a premium valuation, with trailing and forward earnings multiples of 28 and 22 respectively. As with Coca-Cola itself, recent performance has not been in line with market implied expectations with earnings declining in its last quarterly report compared to Q1 2012.
According to the 13F, the trust owned 9.9 million shares of McDonald’s Corporation (NYSE:MCD) at the beginning o April of this year. The market leader in quick service restaurants trades at a small discount to most of the rest of its industry at a trailing P/E of 19. McDonalds, however, has more limited growth prospects than many of its peers and has seen very little change in either sales or net income according to recent reports. And while that valuation is low for the industry, it certainly would not be considered value territory on an absolute basis.
Another troubled company among the Gates Foundation’s stock picks is equipment company Caterpillar Inc. (NYSE:CAT). Famed short seller Jim Chanos recently recommended it as a short on the company’s exposure to mining equipment capital expenditures, claiming that the mining boom is coming to an end and that capex in the industry will collapse. Caterpillar has in fact been seeing a decline in both revenue and earnings from their levels a year ago, and with a trailing P/E of 12 the market- for better or for worse- seems to expect flat performance going forward.
Perhaps these stocks were good long term picks when the trust bought them, and perhaps they will turn around over a period of several years, but right now they generally don’t seem attractive given recent results. The consumer stocks feature high earnings multiples and flat results, while investors could certainly have concerns about Caterpillar’s ability to sustain current results. Berkshire Hathaway Inc. (NYSE:BRK.B) may be bid up above attractive prices as well, in addition to uncertainty regarding the skill of the holding company’s future management.
Disclosure: I own no shares of any stocks mentioned in this article.
