The Bill and Melinda Gates Foundation’s Low P/E Stock Picks Include Exxon Mobil Corporation (XOM)

In May, the Bill and Melinda Gates Foundation Trust filed its 13F with the SEC for the first quarter of 2013, disclosing many of its long equity positions as of the end of March including Exxon Mobil Corporation (NYSE:XOM). At Insider Monkey, we track 13Fs from hundreds of hedge funds and other notable investors, using the included information to help us develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year).

We can also screen individual filings for stocks satisfying a number of criteria; while the trust’s filing is quite old, it is a long-term investors which tends to make little change to its positions over the course of a quarter. Here are four stocks which the trust owned at least $300 million of at the end of Q1 and which have both trailing and forward earnings multiples of 15 or lower (or see the full list of the trust’s stock picks).

The trust, which is managed by Michael Larson and his team, reported owning more than 10 million shares of Caterpillar Inc. (NYSE:CAT). While in terms of trailing earnings Caterpillar does appear cheap at a P/E multiple of 11, concerns have recently been growing regarding the company’s exposure to capital expenditures by the global mining and commodities industry. With Chinese growth appearing to slow, famed short seller Jim Chanos recently argued at the Delivering Alpha conference, the era of growth in commodity demand may be ending which would- according to Chanos- lead to a steep fall in demand for Caterpillar’s mining equipment. The company recently reported a 16% decline in revenue in the second quarter of 2013 versus a year earlier, with the mining equipment segment leading the decline. Consolidated operating profits fell by over 40%. As a result, we are highly skeptical that Caterpillar is in fact a value stock and quite concerned that earnings may in fact decline sharply as the mining industry adjusts.

Oil majors are generally cheap in earnings terms, and Exxon Mobil Corporation (NYSE:XOM)– another of the trust’s stock picks- is no exception, valued at 12 times forward earnings estimates. The integrated oil and gas company, one of the largest U.S companies by market capitalization, experienced a significant decline in revenue in its most recent quarterly report compared to the same period in the previous year. While Exxon Mobil Corporation (NYSE:XOM) managed to hold its profits about steady thanks to higher net margins, investors should look into how sustainable that source of earnings might be (though with oil prices high revenue may rise again in any case).

Larson and his team disclosed ownership of 7.1 million shares of BP plc (ADR) (NYSE:BP) as of the beginning of April. Market sentiment on BP is still poor, as shown by the fact that it is valued at a discount to many of its peers; for example, the forward earnings multiple is 8. The company has been selling off many of its assets, which has the potential to allow management to become more focused on the core business (though of course the oil and gas market will remain the primary driver of profitability). Income investors should note the dividend yield of over 5%.

The oil majors are somewhat appealing from a value perspective, and as we’ve mentioned BP does offer a high yield for dividend investors willing to take on the related commodity risk. Wal-Mart is troubled, but it’s possible that last quarter was particularly bad for reasons unrelated to macro conditions and so we’d want to wait for more results before drawing any firm conclusions. As for Caterpillar, it does seem like the stock should be avoided- despite the low valuation metrics- on concerns about mining capital expenditures.

Disclosure: I own no shares of any stocks mentioned in this article.