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2 Buys From Bill Gates' Secret Investment

 December 31, 2012 12:23 PM

Bill Gates has a secret. It's something very few people know. For the most part, only those who closely follow his business or work with him are aware of this secret.

As the second wealthiest person on Earth, with a net worth of about $65 billion, Gates stepped down from the lead role at Microsoft (Nasdaq: MSFT) a few years ago to dedicate his life to philanthropy. He is already credited with giving away nearly $30 billion through the Bill and Melinda Gates' Foundation -- the largest transparently operated nonprofit foundation in the world.

The foundation has noble goals of easing poverty and enhancing health care worldwide. It is estimated this foundation will have saved 8 million lives by 2020. The Gates Foundation is so well respected that other well-known executives are also part of it. Warren Buffett, for instance, sits on the board of directors and has pledged the majority of his wealth to the cause. You can't get much better of an endorsement than from the Oracle of Omaha.

[Related -Microsoft Corporation (MSFT) Earnings Preview: What To Watch In Q2 Results?]

But what very few people realize is that the majority of Gates' wealth is held within a for-profit firm. You likely have never heard of it, unless you are in the hedge-fund business or follow Gates closely.

I'm talking about Cascade Investment LLC, a private holding company for Gates' investments. Managed by Michael Larson, a successful value investor, the company is headquartered in Kirkland, Wash.

[Related -Microsoft Corporation (MSFT): Good Buy or Good-Bye?]

With Gates and his family being the only shareholders, Cascade is funded by the sale of Microsoft shares. Nearly every trading day for the past 20 years, Gates has quietly sold off his Microsoft shares, in an effort not to alter the stock price, transferring the after-tax proceeds to Cascade Investment. Cascade turns around and reinvests the funds into a myriad of other public companies.

Clearly, extreme due diligence by Gates and his portfolio manager Michael Larson is conducted into each investment. Throw in the Buffett's influence, and Cascade's investments have likely passed the most rigorous of tests.

Despite the secrecy surrounding Cascade Investment and its holdings, the firm is still required to file SEC 13D forms to reveal some of its major trades. Because they must be filed within 10 days by anyone who acquires beneficial ownership of more than 5% of any publically-traded company, 13D filings are more timely and actionable than the quarterly 13F filing.

What this means for regular investors like you and me is that we can simply follow the moves of Cascade to take advantage of the finest due-diligence money can buy.

Here's are two of Cascade's latest investments that are great opportunities for profits.

1. Deere & Co (NYSE: DE)

Gates ramped up his holding in the farm and heavy-equipment manufacturer by 3 million shares from Dec. 7 through Dec. 10. This increased his stake in the company from 5.8% to a 7%.

Gates' last major increase in Deere shares was in August 2011, when he owned 24.5 million shares.

The company's balance sheet appears strong. Deere posted a 13% revenue gain in 2012 and is forecasting an additional 5% growth rate for 2013. I am certain Gates is pleased with Deere's 14% third-quarter equipment sales growth and a 13-cent increase in earnings per share (EPS) to $1.75 during the same time frame.

Most interestingly, the farm equipment sector, and Deere in particular, has benefitted by the high commodity prices and low equipment financing rates this year.

As a trade, there is heavy technical resistance at $87 a share on the daily chart. This creates a breakout entry opportunity on the first daily close above $87 a share.

2. AutoNation (NYSE: AN)

Cascade Investment is a 10% owner of the auto dealer chain. 13D filings reveal Cascade performed multiple "buy" transactions during the first half of 2012. These transactions make it clear that Gates is a huge bull when it comes to auto sales and the U.S. economy.

Shares rocketed higher by 31% for the year into mid-October. Next, the company posted a slight miss of third-quarter earnings, resulting in shares giving back 20% of their gains for the year. Surprisingly, profits soared 40% and revenue jumped 12% during the same quarter.

Apparently, investors were spooked by the company slowing down its share repurchases in the third quarter. As a result, the stock price is holding right on the 200-day simple moving average in the $38-39 range. Technically strong, triple-bottom support has been built at $38, creating a great buying opportunity for the stock right now.

Risks to Consider: Both stocks face heavy headwinds from the shaky economy. Although I believe things are improving, there remains much risk in investing in stocks closely tied to economic growth. Always use stops and position size relative to your risk tolerance when investing.

Action to Take --> I really like both of Cascade's investments detailed above. Deere is set up to be a perfect breakout candidate. My 12-month target price on the heavy equipment maker is $95 a share. AutoNation has pulled back into the value "buy" zone while holding onto support at the 200-day simple moving average. I like it right now as a buy with a 12-month target of $48 a share.

-- Dave Goodboy

Dave Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.


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