Billionaire Bill Gates has invested 66% of his portfolio in three brilliant stocks

The Bill and Melinda Gates (BMG) Foundation Trust generated a 47% return during the three-year period ending in March, while the S&P500 (SNPINDEX: ^GSPC) yielded a less impressive 32%. As of the first quarter, the BMG Foundation Trust had 66% of its assets invested in just three stocks.

1. Microsoft (NASDAQ: MSFT) represented 34% of the portfolio.

2. Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) represented 16% of the portfolio.

3. Waste management (NYSE: WM) represented 16% of the portfolio.

Those companies have been brilliant long-term investments. All three stocks have outperformed the S&P 500 over the past three years, and two have been particularly resilient during bear markets. Are they still worth buying?

Microsoft: 34% of the BMG Foundation Trust

Microsoft reported impressive financial results in the third quarter of fiscal 2024 (ending March 31). Revenue rose 17% to $61.9 billion and GAAP net income rose 20% to $2.94 per diluted share. Momentum in enterprise software and cloud computing, fueled by demand for artificial intelligence services, drove this strong performance.

The bull case for Microsoft is simple. It is the largest enterprise software company and the second largest cloud services provider in the world, and this market is expected to grow at an annual rate of 14% and 21% respectively through 2030. Additionally, Microsoft is creating new revenue streams in both segments with artificial intelligence products such as Microsoft 365 Copilot and Azure OpenAI Service.

Wall Street expects Microsoft to grow earnings per share 13.7% annually over the next three to five years. This estimate leaves room for gains, as Microsoft hasn’t yet made any serious money from AI software and services. However, if we assume Wall Street is right, the current valuation of 36 times earnings is somewhere between reasonable and expensive.

I say that because the PEG ratio – the price-to-earnings ratio number divided by expected earnings growth – currently stands at 2.6, a premium to the three-year average of 2.4. Personally, I would wait for a slightly lower price before buying this stock, but I think patient investors can buy a small position today.

Berkshire Hathaway: 16% of the BMG Foundation Trust

Berkshire Hathaway reported solid first-quarter financial results. Revenue rose 5.2% to $90 billion thanks to strong momentum at its insurance subsidiaries. Meanwhile, operating profits (which eliminate the impact of investment gains and losses) rose 39% to $11.2 billion, beating even Wall Street’s highest estimate.

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The bull case for Berkshire is its strong presence in general insurance, which gives CEO Warren Buffett a consistent flow of money in the form of premiums. Buffett has invested that capital with great success over the years. As evidence of this, Berkshire’s book value per share has risen 11% annually over the past decade.

Berkshire also owns several dozen subsidiaries that operate in a wide range of industries, including freight rail, utilities, energy, manufacturing and retail. Many of these subsidiaries provide essential goods and services, making Berkshire a resilient company. For that reason, the stock has consistently outperformed the S&P 500 during bear markets, as shown in the chart below.

Data source: Yardeni Research, Ycharts.

Warren Buffett believes Berkshire can outperform the average U.S. company in the future, which is another way of saying it can outperform the S&P 500. should doing slightly better than the average American company and, more importantly, should also operate with significantly less risk of permanent capital loss,” he wrote in his latest shareholder letter.

Waste management: 16% of the BMG Foundation Trust

Waste Management reported mixed results in the first quarter. Revenue rose 5.5% to $5.2 billion, falling short of Wall Street’s expected growth of 6.7%. But GAAP net income still rose 35% to $1.75 per diluted share, easily exceeding expected 15% growth.

The bull case for Waste Management focuses on its position as the largest provider of waste collection and disposal services in North America as measured by revenue. The company also has 28% of the landfill volume in the US, while its closest competitor has 20%. Brian Bernard op Morning star says the benefit is “nearly impossible to replicate given the enormous regulatory hurdles.”

More generally, waste management provides essential services, meaning demand should remain more or less constant despite economic ups and downs. In addition, the extensive network of transfer stations and landfills creates an economic moat that provides the company with pricing power. Brian Bernard recently wrote, “The scarcity of landfills has supported pricing power [Waste Management] with annual increases in core prices consistently exceeding inflation.”

These qualities make Waste Management a resilient company, and like Berkshire Hathaway, the stock has consistently outperformed the S&P 500 during bear markets.

Data source: Yardeni Research, Ycharts.

Going forward, the waste management market is expected to grow by 5.4% per year until 2030. Wall Street expects Waste Management earnings per share to grow 11.1% per year over the next three to five years. That estimate makes the current valuation of 33 times earnings seem a bit pricey. These numbers give a PEG ratio of around 3, but I would feel more comfortable buying shares if the multiple were closer to 2.

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Trevor Jennevine has no positions in any of the stocks mentioned. The Motley Fool holds 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 Invested 66% Of His Portfolio In 3 Brilliant Stocks, originally published by The Motley Fool