Bill Gates is one of the best-known billionaires in the world.
The Microsoft (NASDAQ: MSFT) founder became the first centibillionaire in 1999, decades before anyone else reached that level of wealth. He’s still worth well over $100 billion today despite giving away billions to charitable causes and nonprofits over the past 25 years. Most of his donations go to the Bill & Melinda Gates Foundation, which aims to enhance healthcare and reduce poverty around the world.
Gates isn’t the only centibiliionaire funding the nonprofit. Warren Buffett has also pledged donations to the foundation since 2006, but those contributions will end after his death. Buffett also served as a trustee until 2021.
The foundation’s trust includes an equity portfolio valued at around $46 billion today, but over two-thirds of that amount, about 68%, is invested in just three stocks.
1. Microsoft (37%)
It’s probably not a huge surprise that Microsoft makes up a significant chunk of the Bill & Melinda Gates Foundation Trust. Bill Gates founded the company in 1975 and remains one of the largest individual shareholders despite donating and selling millions of shares worth tens of billions of dollars.
Gates made a $20 billion donation in 2022, and a large portion of that donation appears to have been in the form of Microsoft stock. The trust’s share count increased by over 38 million that year. It now has about 36.5 million shares worth nearly $16.8 billion, as of this writing.
The Gates Foundation has been able to hold on to most of those shares, and it’s paid off handsomely. Microsoft shares are up more than 63% since the end of July 2022, driven by surging demand for artificial intelligence.
Microsoft has become a leader in AI, thanks in part to its investment in ChatGPT creator OpenAI. It added $10 billion to its investment in early 2023, which positioned it as a top choice for developers looking to use the public cloud to train and deploy AI-powered applications. AI-related services helped drive its Azure cloud platform revenue growth of 31% in its most recent quarter. That’s faster growth than anyone else in the industry.
Meanwhile, Microsoft remains a dominant force in enterprise software with its Windows OS and Office productivity suite. It’s adding enhanced AI features and seeing strong traction in sales.
Microsoft’s shares trade for a high valuation of about 34 times forward earnings. But with a long runway for growth in cloud computing and AI, the cash cow of its enterprise software business, and its current cash position, it may be worth the high multiple.
2. Waste Management (16%)
Waste Management (NYSE: WM) isn’t the kind of company you think of when you think of when you think of a tech billionaire. But Gates is probably more influenced by Buffett than by Silicon Valley’s tech elite. Waste Management is a textbook Buffett stock.
The business is easily understood, it’s absolutely boring, and it provides stable and growing revenue. The company benefits from a wide economic moat derived from its landfill ownership and route density. That allows Waste Management to increase its pricing faster than inflation. The company also grows from acquisitions, such as the recent purchase of Stericycle.
The company’s also found ways to reduce costs over the past decade. Its operating margin climbed from around 15% 10 years ago to 19.4% over the trailing 12 months.
Gates has held shares of Waste Management for the foundation trust for over a decade, doubling down on the position in 2022. The position has paid off well, as the stock’s total return over the past decade has more than doubled the S&P 500.
The stock currently trades at an enterprise value to EBITDA ratio of about 17.25, which is comparable with its closest competitors. While it might be a bit expensive for a boring businesses, Waste Management’s strong position in its stalwart industry might make the stock worth the price for someone looking for a stable utility.
3. Berkshire Hathaway Class B shares (15%)
As mentioned, Buffett has been a longtime contributor to the Bill & Melinda Gates foundation. The way Buffett donates his wealth is by converting his Berkshire Hathaway Class A shares (NYSE: BRK.A) into Berkshire Hathaway Class B shares (NYSE: BRK.B). He then donates the Class B shares.
The maneuver allows Buffett to retain control of Berkshire Hathaway while giving away much of his wealth. He donates about 5% of his remaining shares to various nonprofits every year.
The trust’s current position in Berkshire Hathaway is actually one of the lowest levels of concentration in the stock. Buffett’s donation stipulates the foundation spend the entire value of his contribution each year plus 5% of its net assets. In effect, Buffett’s making sure the foundation doesn’t stockpile Berkshire stock. That’s resulted in a steadily declining share count over the past few years, as Berkshire stock has increased in value.
There’s good reason to expect Berkshire to outperform the S&P 500. First, its forward P/E of just 18.5 presents good value to the market. That’s despite Buffett’s assertion that the company’s current mix of wholly and partially owned businesses present better earnings prospects than the average American corporation. That valuation is made even more attractive when you account for the $189 billion in cash and treasury bonds on Berkshire’s balance sheet, the strong free cash flow of Berkshire’s core operations, and Buffett’s consistent share repurchases.
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Adam Levy has positions in Microsoft. The Motley Fool has positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends Waste Management and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaire Bill Gates Has 68% of His Foundation’s $46 Billion Portfolio Invested in 3 Phenomenal Stocks was originally published by The Motley Fool