Inside the Bill and Melinda Gates Foundation Trust: Unveiling 2 Great Stock Holdings

The Bill and Melinda Gates Foundation Trust is a relatively concentrated portfolio for a trust with $36.5 billion invested. According to its last SEC filing, it only holds 22 stocks, so it's definitely not an index "tracker." As such, it's worth monitoring every stock in the portfolio, so here's a look at Caterpillar (CAT 1.59%) and Danaher (DHR 0.32%).

Caterpillar looks fairly valued

Management aims to achieve free cash flow (FCF) in a targeted range of $4 billion to $8 billion. If that turns out to be true, Caterpillar is fairly valued right now in my view.

Taking the midpoint of the range of $6 billion and applying a price-to-FCF multiple of 20 would produce a target market cap of $120 billion. That's not far from the current market cap of $126 billion. 

Image source: Getty Images.

Is Caterpillar a buy?

A quick look at the growth of Caterpillar's sales to retailers in recent years shows how its core construction equipment sales have stalled. Yet growing resource industries (mining and aggregate machinery) and energy and transportation sales have more than offset weakness on the construction side. 

Data source: Caterpillar.

As such, Caterpillar is a stock that should suit those who believe in a long-term bull market for commodities. Also, given the company's nearly 30-year record of raising its dividend, income-seeking investors should like it, too.

Danaher is working through headwinds 

There are challenges to valuing this healthcare-focused company as well. Unlike Caterpillar, which faces significant cyclicality in its end markets, Danaher's healthcare exposure should give it limited downside under normal conditions. However, the global economy has been anything but normal in recent years due to governments' reactions to the COVID-19 pandemic. 

Danaher was one of the big winners from these events. Its diagnostic tests were used to detect the virus, and its life sciences equipment was used to develop vaccines and therapies. 

However, now that the world is learning how to live with the virus, Danaher's COVID-19-related revenue is starting to decline. This dynamic can be seen in the company's first-quarter results and full-year guidance. 

Danaher's base business core sales growth excludes COVID-19 testing and products that support COVID-19 vaccines and therapies, and it's growing at a solid mid-single-digit rate. However, falling COVID-19-related revenue is dragging its overall revenue growth into negative territory. 

Data source: Danaher presentations. Chart by author.

In addition, it isn't always easy to delineate COVID-19-related demand from non-COVID-19-related demand in bio-processing. Danaher's first-quarter biotechnology sales were flat over the same period last year. 

As such, Danaher is facing an unusual couple of years. According to the Wall Street analyst consensus, its 2023 will look like its 2021, and its 2024 will look like its 2022. This is because the underlying (base business core sales) growth will gradually offset the decline of COVID-19-related revenue. 

Data source: marketscreener.com. EBITDA = earnings before interest, taxes, depreciation, and amortization.

Is Danaher stock a buy?

Danaher is undoubtedly an attractive company, and the pandemic has made it even more so. For example, it's expanded its diagnostic test platform installments as new customers acquired them to run Danaher's COVID-19 tests.

That's a win for Danaher, as its long-term aim in diagnostics is to expand consumables sales by driving new test growth. In addition, the research into vaccines and therapies has spurred abiding interest in research in these areas of medical technology. 

Furthermore, the rapid ongoing growth in therapeutic monoclonal antibodies promises to spur long-term demand for Danaher's bioprocessing technology, even if it's going through some choppiness due to reasons discussed earlier. 

All told, if you can tolerate some near-term uncertainty, Danaher is worth a look. However, the company's stock is trading at slightly more than 23 times its 2024 estimated earnings, so it will be a while before its growth trajectory normalizes and the stock looks like a good value.