Should Bill Gates Sell His Microsoft Corporation (MSFT) Stock?

In late December, I made a prediction that Microsoft Corporation (NASDAQ:MSFT) stock would hit $80 in 2017. In reality, it was less a prediction than my agreement with Piper Jaffray analyst Alex Zukin’s 12-month price target for MSFT stock of $80.

Should Bill Gates Sell His Microsoft Corporation (MSFT) Stock?

More than one month into the year and the Microsoft stock price has a long way to go to reach this lofty goal.

It’s fair to say that if MSFT stock is going to hit $80, Microsoft’s burgeoning cloud business — an annualized revenue run rate of $14.0 billion as of Q2 2017 — needs to deliver more growth over the next three quarters (April, July and October earnings announcements) to justify to investors a forward 2018 price-to-earnings ratio of 24.5.

As I said in my earlier article, I think MSFT can deliver on this front.

But it got me thinking about Microsoft co-founder Bill Gates, the world’s richest person at $85 billion and the owner of approximately 179 million shares of MSFT stock, a number that’s been dwindling by approximately 80 million per year over the past decade or so; the proceeds going to fund the Bill and Melinda Gates Foundation.

If this pace continues Bill Gates will have reduced his Microsoft stake to zero by sometime in 2019.

Should Bill Gates Sell His MSFT Stock?

No, I’m not talking about whether he should continue to fund his foundation — of course, he should –I’m merely wondering if there wasn’t a better stock to sell to fund the foundation’s good works.

A quick look at the financial statements for the foundation’s 2015 and 2014 fiscal years shows that $11.3 billion was spent over the course of two years to fund its programs around the world, an average of $5.65 billion per year, about the same amount that Gates would currently generate from the sale of 80 million shares of Microsoft stock.

So, from a financial planning standpoint, the 80 million figure makes a whole lot of sense.

The holdings of the trust that oversees the investments and cash donated by the Gates’s along with Warren Buffett for use by the foundation had a value of $18.5 billion as of September 30, 2016; more than half (57.8%) of the portfolio invested in Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) Class B stock.

Since August 24, 2006 through July 2015, Buffett has donated 200.6 million shares of Class B Berkshire Hathaway shares to the foundation; this past year, Buffett donated roughly 15 million shares. The remaining 285 million shares he agreed to donate back in June 2006 will be doled out at a rate of 5% per year until all 500 million shares are in the hands of the foundation sometime around 2036.

So, the choice comes down to whether it makes sense to sell the shares of Microsoft for cash to fund the foundation’s work and continue to hold the Berkshire Hathaway shares as an investment or the other way around.

The Gates have chosen the former rather than the latter.

On the surface, that would seem to be a mistake given MSFT stock has outperformed Berkshire Hathaway Class B stock by 269 basis points on annuallized basis over the last five years through Feb. 6.

So, with that in mind, does it make sense for Bill Gates to sell his MSFT stock?

I don’t think he should as some of its best growth lies in the immediate future. But, I also don’t think the trust should sell Berkshire Hathaway stock because it provides such good diversification and protection of capital.

Both of these stocks are worth owning for the long haul.

If it were up to me, I’d probably look at cashing in some of the trust’s other holdings first, but thankfully for all those around the world deserving of the good education and healthcare the foundation looks to fund, it’s not up to me.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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