When it comes to the stock market, many investors -- myself included -- spend quite a bit of time analyzing the trading activity of the richest and most successful investors in the world. These include well-known experts like Warren Buffett, Carl Icahn and George Soros, who have become bona fide billionaires as a result of their successful investing strategies.
No matter how successful or rich these mega-investors are, they're still far less wealthy than Bill Gates -- the richest person in the United States, with an estimated fortune of $59 billion, according to Forbes.
Most people know Gates' wealth stemmed from founding software giant Microsoft (Nasdaq: MSFT), as opposed to successful stock picking. What is less well known is that Gates has shifted a good deal of his wealth to the Bill & Melinda Gates Foundation Asset Trust, which funds the Bill & Melinda Gates Foundation, his family's main philanthropic vehicle, which focuses on solving health care, education and poverty issues worldwide.
The trust manages not only Gates' contribution to the endowment, but also donations from various other wealthy individuals, including Warren Buffett, who contributes annually. The foundation currently sits on an estimated $15 billion in capital, which the trust strives to preserve in order to serve its philanthropic goals.
Even less known is that Gates has a private investment company, Cascade Investment LLC, which he uses as a vehicle to diversify his wealth out of Microsoft and explore other opportunities in the stock market.
Clearly, Gates knows how to invest his money. So when he buys or sells a stock, you need to pay attention. It could lead to a solid investing idea worth adding to your own portfolio.
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In the fourth quarter of 2011, for instance, Gates was busy buying and selling an interesting group of stocks. Here's some insight on two of the billionaire's latest investment moves...
A long-term commitment to Ecolab At the end of February, cleaning product giant Ecolab (NYSE: ECL) named Gates' close business confidante Michael Larson to its board of directors.
Ecolab makes and sells cleaning, sanitizing, pest control and maintenance products and services to major hospitality, health care and industrial facilities throughout the world. This work cannot be cut in an economic downturn, which results in an operational consistency that probably helps the managers of the Cascade and Gates Foundation portfolios sleep well.
Cascade owns a sizable chunk of Ecolab -- 27 million shares, or roughly 9% of the company, for a total market value of about $1.6 billion. The Gates Foundation is another big holder. It ended the year with 252,000 shares, a year-end market value of $4.4 billion.
Ecolab has been as solid a performer. The stock has nearly tripled during the past decade, rising from less than $24 to a recent $60 a share.
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In the past decade, Ecolab has grown annual sales by more than 11% a year. This has pushed sales from $3.4 billon to what could reach $12 billion by the end of 2012. Profit growth has been nearly as impressive at a little more than 10% annually. Earnings per share (EPS) started at $0.80 a decade ago and are likely exceed $3 by the end of this year. The stock's forward price-to-earnings (P/E) ratio is 20, however, which is not that cheap.
The lone active purchase At some point during the fourth quarter of 2011, the Foundation purchased 351,000 shares of embattled food packager Diamond Foods (Nasdaq: DMND), worth roughly $11 million. Because of the way these filings work, it is not possible to tell precisely when buying and selling activity takes place. For Diamond Foods, this is crucial to know because the stock plummeted early in the quarter. The drop was dramatic -- Diamond traded above $90 per share in late September but fell precipitously in November. The stock stabilized a bit in December, settling down around $30 per share.
In what has been a very public implosion, Diamond was riding high and had agreed to acquire the Pringles potato chip brand from consumer products giant Procter & Gamble (NYSE: PG). But shortly after the deal was announced, accounting irregularities surfaced at Diamond surrounding the manner in which it accounted for the purchase of walnuts from its suppliers. There has been speculation it cooked its books to make its numbers look better to P&G in order to seal the Pringles purchase.
Returning to the timing of the Gates purchase, it could very well be that the Foundation chose to go bottom fishing in Diamond's stock. The company still owns a healthy mix of food brands, including Kettle Potato Chips, Pop Secret and Diamond Culinary Nuts. Pringles has since been snapped up by rival Kellogg (NYSE: K), but Diamond still has a solid growth track record and could eventually put its accounting woes behind it. If Gates holds Diamond through the first quarter, or even acquires additional shares, then he'll likely own the stock for the long haul.
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Risks to Consider: The jury is still out on the merits of the purchase of Diamond Foods. Therefore, it's wise to research this stock further before you make any decision.
Action to Take --> Ecolab is a great core holding consideration for conservative investors who are focused on the long term.
Shares of Diamond Foods have continued to struggle into 2012, but with any clarity on the accounting woes that won't bring the company to financial ruin, clearly make this a turnaround stock with tons of upside potential. Just a year ago Diamond earned $2.61 per share, and analysts still project $2.78 per share this year. This puts the forward P/E of 8 in value territory.
