The Bill and Melinda Gates Foundation is the largest private charitable organization in the world, and much of the foundation’s $50 billion endowment is held in publicly traded stocks.
While the Gates Foundation is first and foremost a philanthropic organization, the enormous sum of money in its trust fund requires careful investment management.
It may surprise many investors to learn that the fund’s portfolio is quite concentrated, containing just 22 stocks. Here we examine two of the fund’s top holdings that account for nearly one-third of the total Gates Foundation portfolio
Berkshire Hathaway
Berkshire Hathaway (NYSE:BRK.B) is the Gates Foundation’s third-largest holding, coming in behind only Microsoft itself and Canadian National Railway.
The foundation owns 19.69 million Class B shares of Berkshire with a total valuation of about $6.08 billion. This accounts for roughly 16.7 percent of the total holdings.
Although Berkshire can no longer match the enormous growth rates it produced earlier in its history, the investment company headed by legendary value investor Warren Buffett is still widely considered a safe, stable stock for long-term investors.
Since 2015, the company’s quarterly earnings have more than doubled from around $1.60 to over $3.50 per share. Thanks to this steady trend of earnings increases, the Gates Foundation has made out quite well on its Berkshire position. The foundation’s cost basis is $196, well below the current share price.
Beyond Berkshire Hathaway’s sterling reputation as an investment, the foundation’s large stake in the company also reflects the well-known friendship Bill Gates and Warren Buffett have cultivated over more than 30 years.
Although Buffett has avoided investing in Microsoft to avoid a potential conflict of interest, he has donated a significant number of his Berkshire shares to the Gates Foundation.
Bill Gates also spent more than 15 years on the board of Berkshire, joining in 2004 and departing in 2020 to spend more time focusing on his foundation’s philanthropic efforts.
Despite the solid gains the Gates Foundation has made from its Berkshire Hathaway position, the trust has recently pared back its exposure to the stock.
In May, the trust reported that it had sold roughly 20 percent of its Berkshire position. In large part, this may have been a move intended to free up cash from the foundation’s investments. Unlike other stocks held by the Gates Foundation, Berkshire does not pay a dividend.
While the Gates Foundation locked in very favorable pricing on its Berkshire shares, the stock could still be a good investment at today’s prices. Analysts forecast a median target price of $384.25, up 8.4 percent from the current trading price.
The stock also trades at just 21.5 times earnings and 18.5 times cash flow, suggesting that it is likely in at least a fair valuation range. Given that the company is expected to raise earnings by over 7 percent over the coming 12 months, investors may continue to see the steady returns Berkshire has become known for.
Waste Management
A somewhat more surprising position for the Gates Foundation is a massive stake in Waste Management (NYSE:WM).
The foundation’s holdings in the company amount to 35.23 million shares valued at around $5.75 billion, roughly 15.8 percent of the total portfolio. The average cost basis for these shares is just over $95, and the stock currently trades at $163.45. As such, the Gates Foundation has seen the value of its Waste Management shares appreciate by over 70 percent.
In some ways, the Waste Management position fits in well with the foundation’s generally conservative investment strategy. As a public trash removal company operating on long-term contracts, Waste Management is well-insulated from economic downturns and competitive disruption.
Over the past 13 years, the company has had only nine quarters in which revenue declined on a year-over-year basis. In that same time, Waste Management’s trailing 12-month revenue numbers have climbed steadily from under $12 billion to over $20 billion.
Looking to earnings, Waste Management has steadily increased its profitability over the last several years. In 2015, the company was routinely reporting earnings of $0.50 to $0.75 per share.
That range is now closer to $1.20-1.50. While far from the enormous earnings growth seen by some of the large tech companies during that same time, this steady and stable growth is part of what has made the stock a solid choice for conservative long-term investors.
Waste Management also produces a decent amount of cash for the Gates Foundation through its reliable dividends. WM shares pay $2.80 annually, yielding just over 1.7 percent.
Based on the number of shares the foundation owns, this amounts to an annual dividend income of about $98.6 million.
Waste Management has raised its dividend at an annualized rate of 6.5 percent over the past 10 years, rewarding long-term investors with steadily larger yields on cost.
In addition to being a well-performing investment, Waste Management also aligns closely with the goals of the Gates Foundation.
The company has invested billions of dollars in recycling and material recovery while also reducing its greenhouse gas emissions by more than 40 percent. This eco-friendly focus may also help the company maintain its performance as the economy shifts toward greener fuel sources and business models.
Like Berkshire Hathaway, Waste Management could still have a decent amount of upside left in it over the next year. The company’s earnings are projected to grow by over 11 percent in the coming 12 months, while the stock price is expected to rise 10.5 percent to a median target of $177.75.
Considering that the company’s dividend payout ratio is still at 50 percent, there’s also a good chance that management will keep up its 20-year streak of dividend increases. As such, Waste Management may be a good choice for both conservative growth and income investors.
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