The Bill & Melinda Gates (BMG) Foundation Trust had $42 billion invested in 24 stocks as of the fourth quarter, with 51% of that total concentrated in two positions. microsoft (NASDAQ: MSFT) and 17% berkshire hathaway (NYSE: BRK.A) (NYSE: BRK.B).
What’s notable about BMG Foundation Trust is its return of 41% over the three years to December 2023. S&P500 (SNPINDEX: ^GSPC) Over the same period, the return was just 33%. Much of BMG Foundation Trust’s outperformance can be attributed to its largest holding.
In fact, Microsoft and Berkshire have been great investments over the past three years, returning 74% and 54%, respectively. Here’s what investors need to know about these stocks.
Microsoft: 34% of Bill & Melinda Gates Foundation Trust
Microsoft reported third-quarter financial results that exceeded Wall Street expectations for both revenue and bottom line. Sales rose 17% to $61.9 billion, with sales of enterprise software and cloud services showing particularly strong growth, driven in part by demand for artificial intelligence (AI) products. Meanwhile, GAAP net income increased 20% to $2.94 per diluted share due to disciplined expense management and share repurchases.
Microsoft’s bullish strategy going forward centers on its strong presence in enterprise software and cloud computing. Specifically, Microsoft will account for 18% of commercial software sales in 2023, and its market share is projected to exceed 21% by 2027. morgan stanley. The company’s strong presence in office productivity and enterprise resource planning software is the basis of its dominance, but its recently launched generative AI Copilot should help it increase its share.
Microsoft Azure still lags behind Amazon Web Services (AWS) cloud infrastructure and platform services revenue. However, Azure has gained 2 percentage points in market share over the past year, and investments in AI products could lead to further market share gains in the future. In fact, more than 65% of Fortune 500 companies use Azure OpenAI Service, a platform that allows companies to customize large-scale language models and build generative AI applications from OpenAI. Additionally, his recent CIO survey by Morgan Stanley found that Microsoft is the cloud services company most likely to gain market share over the next three years.
Going forward, the enterprise software market and cloud services market are expected to grow at 13.7% and 14.1% annually until 2030, respectively. Meanwhile, Wall Street expects Microsoft to grow its earnings per share at an annual rate of 14% over the next three to five years. Year. The problem is evaluation. The current price/earnings ratio is 35.4 times, which is higher than the average P/E ratio of 32.4 times over the past three years. Personally, I’d keep this stock on my watchlist for now. If the valuation drops to the average of the past three years, I would feel comfortable buying the stock.
Berkshire Hathaway: 17% of Bill & Melinda Gates Foundation Trust
Berkshire Hathaway reported strong financial results in the first quarter. Revenues increased 5% to $89.8 billion, and GAAP earnings decreased 64% to $5.88 per diluted share (for Class B shares). However, this decline was due to significant investment gains in the previous year. First-quarter operating profit (excluding these gains) rose 39%, beating even Wall Street analysts’ highest expectations.
Going forward, the bullish situation for Berkshire triples. First, the company ranks as one of the largest property and casualty insurance companies in the world, and continually raises large amounts of capital (in the form of premiums) that can be invested in stocks and bonds. Second, CEO Warren Buffett has demonstrated the ability to earn superior returns on invested capital. For example, Berkshire’s book value per share has increased by 11% annually over the past 10 years.
Third, Berkshire owns dozens of subsidiaries spanning freight rail transportation, utilities, energy, and manufacturing. That diversity makes the company’s business highly resilient during economic downturns. Since 1980, Berkshire stock has outperformed the S&P 500 by a median of 4.4 percentage points during recessions and 14.9 percentage points during bear markets, according to Bespoke Investment Group.
Looking forward, CFRA analyst Katherine Seifert expects Berkshire to grow operating earnings per share at 12% annually over the next three years, and Argus’ Stephen Biggar expects Berkshire to grow operating earnings per share at 12% over the next five years. It expects operating profit to grow at 12% annually. Despite these expectations, his current valuation of 21.7 times operating income seems reasonable.
In fact, Warren Buffett believes Berkshire can outperform the S&P 500 by a small amount over the next few years. “Berkshire should It’s doing a little bit better than the average American company, and more importantly, it’s doing a little bit better than the average American company. should We also operate with significantly reduced risk of permanent loss of capital,” he wrote in his latest letter to shareholders.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Trevor Jennewine has a position at his Amazon. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Microsoft. The Motley Fool recommends the following options: His long January 2026 $395 call on Microsoft and his short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Billionaire Bill Gates invests 51% of his portfolio in two great stocks Original article published by The Motley Fool
