Billionaire Bill Gates invested 51% of his portfolio in two great stocks

In the fourth quarter, the Bill and Melinda Gates (BMG) mutual fund invested $42 billion in 24 stocks, but 51% of that amount was concentrated in two positions: 34% in Microsoft (NASDAQ: MSFT) and 17% indoors Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).

What sets the BMG Foundation Trust apart is its 41% return over the three-year period ending December 2023. S&P500 (SNPINDEX: ^GSPC) in the same period it reached only 33%. Much of BMG Foundation Trust’s outperformance can be attributed to its largest holdings.

Microsoft and Berkshire have been great investments over the last three years, returning 74% and 54% respectively. Here’s what investors need to know about this stock.

Microsoft: 34% of the Bill & Melinda Gates Foundation trust fund

Microsoft reported third-quarter financial results that exceeded Wall Street expectations in both revenue and revenue terms. Revenue increased 17% to $61.9 billion, driven by particularly strong revenue growth in its enterprise software and cloud services segment, driven in part by demand for artificial intelligence (AI) products. Meanwhile, GAAP net income increased 20% to $2.94 per diluted share thanks to disciplined cost management and share buybacks.

Going forward, the case for Microsoft centers on its strong presence in enterprise software and cloud computing. Specifically, Microsoft accounted for 18% of commercial software sales in 2023, and its market share is expected to exceed 21% in 2027, according to Microsoft. Morgan Stanley. The company’s strong presence in office productivity and enterprise resource planning software confirms this dominance, although its recent introduction of co-pilots of generative AI should help it gain market share.

Microsoft Azure still lags behind Amazon Web Services (AWS) in the trade of cloud infrastructure and platform services. However, Azure has gained 2 percentage points of market share over the past year, and investments in AI products may increase market share in the future. More than 65% of Fortune 500 companies use Azure OpenAI Service, a platform that enables companies to customize large OpenAI language models and build generative AI applications. Additionally, Morgan Stanley’s recent CIO survey shows that Microsoft is the cloud services company most likely to gain market share over the next three years.

Looking ahead, the enterprise software and cloud services market is expected to grow at 13.7% and 14.1% annually, respectively, through 2030. Meanwhile, Wall Street expects Microsoft to grow earnings per share by 14% annually over the next three to five years. year. The problem is pricing. The stock is currently trading at 35.4 times earnings, which is a premium to its three-year average of 32.4 times earnings. Personally, I would keep this stock on my watchlist for now. I would feel comfortable buying the stock if the valuation dropped to its three-year average.

Berkshire Hathaway: 17% of the Bill & Melinda Gates Foundation trust fund

Berkshire Hathaway announced strong financial results for the first quarter. Revenues increased 5% to $89.8 billion and GAAP earnings decreased 64% to $5.88 per diluted share (on a Class B basis). However, this decline was due to significant investment gains in the previous year. Operating income (excluding these profits) grew 39% in the first quarter, exceeding even the highest estimates of Wall Street analysts.

Going forward, the argument for a Berkshire bull is three-fold. First, it is one of the largest non-life insurers in the world, which means it consistently raises significant capital (in the form of premiums) that can be invested in stocks and bonds. Second, CEO Warren Buffett has demonstrated the ability to generate excellent returns on invested capital. For example, Berkshire’s book value per share has grown 11% annually over the past decade.

Third, Berkshire owns dozens of subsidiaries engaged in rail freight, utilities, energy and manufacturing. This diversity makes the company quite resistant to economic recessions. Since 1980, Berkshire shares have outperformed the S&P 500 Index by an average of 4.4 percentage points during recessions and 14.9 percentage points during bear markets, according to Bespoke Investment Group.

Looking ahead, CFRA analyst Catherine Seifert expects Berkshire to grow its operating earnings per share by 12% annually over the next three years, while Argus’ Stephen Biggar expects the company’s operating earnings per share to grow by 12%. in the next five years. per year. Compared to these estimates, the current valuation of 21.7 times operating income seems reasonable.

Warren Buffett remains confident that Berkshire can outperform the S&P 500 in the coming years, albeit on a modest scale. “Berkshire should is doing slightly better than the average American company and, more importantly, should they also operate with a much lower risk of permanent capital loss,” he wrote in his latest letter to shareholders.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Trevor Jennevine has positions at Amazon. The Motley Fool covers and recommends Amazon, Berkshire Hathaway and Microsoft. The Motley Fool recommends the following options: long calls to Microsoft for $395 in January 2026 and short calls to Microsoft for $405 in January 2026. The Motley Fool has a disclosure policy.

Billionaire Bill Gates Invested 51% of His Portfolio in Two Brilliant Stocks Originally published by The Motley Fool