Jim Cramer is a huge fan of Stockpickr, where he's been able to glean a lot of investment ideas.Take for instance the George Soros portfolio. I've written a number of "Trade Like George Soros" articles on TheStreet.com, based on the idea that if we follow the Soros trades, we could do as well as him. Cramer, however, took that idea one step further. On the July 12 episode of "Mad Money," Cramer suggested an alternative: trading better than George Soros. Some stocks in Soros' portfolio might be laggards, or even losers. So why not eliminate the losers and stick with the winners? By conducting a mini "Lightning Round" based on the George Soros portfolio, Cramer culled out the weeds and left us with a garden of stock delights. At Stockpickr, there are a number of portfolios, such as High-Yield George Soros Stocks, Soros Stocks With Insider Buying and Cramer's Take on Select Soros Plays, that attempt to outperform the Soros portfolio. I decided to follow Cramer's lead, this time using Bill Gates' portfolio, Cascade Investments. Cascade, Gates' investment company, was worth $3.5 billion as of March 30. His portfolio is very concentrated, invested in only about a dozen stocks. Given the small number of investments, it's fair to assume a lot of homework and money goes into each stock pick -- so much so that Gates can, if he wants, exert significant influence on management. My Better Than Bill Gates portfolio at Stockpickr deconstructs Gates' holdings, keeping what I believe are the winners and discarding what I believe are the losers.
Some characteristics stand out immediately. For one, there's no Microsoft ( MSFT). Why should there be? For us, Microsoft is an investment. For Gates, the software company's chairman and co-founder, it's his piggy bank. Another salient characteristic of the portfolio is that it contains no tech stocks. This, too, makes sense. Why should Gates invest in the competition? Since Microsoft is not in his portfolio, I chose not to include it in my Better Than Bill Gates portfolio. I started with Canadian National Railway ( CNI), Gates' largest investment, worth nearly $1.4 billion and representing 37.7% of Cascade Investments' portfolio and 5.8% of CNI. Railroads have been a hot area for super investors, and with good reason. As I discussed with Jim Cramer in a May video for TheStreet.com TV about railroads, rail transportation is more cost effective than truck transportation. Warren Buffett, who is a good friend of Gates, owns Norfolk Southern ( NSC), Union Pacific ( UNP) and Burlington Northern Santa Fe ( BNI). Canadian National is putting up good numbers. In the first quarter of 2007, it returned 20% on equity, far better than the industry average of 14.7%. For that reason, I believe Canadian National is a keeper. Next is Republic Services ( RSG), a Florida-based waste disposal company, in which Cascade invested $756 million, representing 20.6% of Cascade's portfolio and 14% of the company. Waste disposal is a booming business. The Dow Jones waste and disposal services index has been outperforming the S&P 500 since the spring. That said, is Republic Services the best choice in the sector?
Republic Services' largest competitors are Allied Waste ( AW), Waste Industries ( WWIN) and Waste Management ( WMI). Of the four, Allied Waste appears to be the best value, with a
price-to-earnings /growth ratio of 1.54 and a price-to-sales ratio of 0.84, compared with 1.85 and 1.95 for Republic Services. Bearing those values in mind, I'd substitute Allied Waste for Republic Services to improve on Gates' portfolio. Grupo Televisa ( TV) is the largest TV broadcaster in Mexico. In fact, it's the largest media company in the Spanish-speaking world. As of March 31, Grupo Televisa represented 15.8% of Cascade's portfolio. That $579 million investment, or 19.5 million shares, also represents 4% of Grupo Televisa. I believe that, given the enormous Hispanic population in the West, Televisa makes an attractive investment for Cascade. This is an example of Peter Lynch's "one up on Wall Street" investment philosophy of looking for trends in your neighborhood. Televisa not only is gigantic in and of itself, but it also had an investment in Univision, which was sold in 2006. But Televisa is having problems. That sale was dilutive to earnings -- not a good thing. Some affiliates suffered losses. Televisa reported weaker earnings in the first quarter of 2007. Sometimes portfolio positions stay around too long. I'd pass on this one. Fisher Communications ( FSCI) -- representing 0.6% of Cascade Investments' portfolio (455,000 shares worth $22 million), or 5.2% of Fisher -- is an even more local media play than Televisa. Fisher owns TV stations in Washington, Oregon, Idaho and Montana, including KOMO-TV in Gates' home city of Seattle.
In the first quarter of 2007, Fisher returned 2.7% on common equity, compared with the industry average of 8.3%. Fisher shares have been trading in a narrow range, between the low $40s and low $50s, for the past four years. The company pays a 0.5% dividend, just enough to be able to say it pays one. Fisher appears to be neither a growth nor an income story. With nothing in the horizon to drive either, I'd also pass on Fisher Communications. PNM Resources ( PNM), representing 5.7% of Cascade Investments' portfolio (6.5 million shares worth $210 million), or 8.5% of PNM, is a regional energy and gas transmission company based in Albuquerque, N.M. PNM is a regional utility play that pays a 3.3% dividend. Its competitors include American Electric Power ( AEP), El Paso Electric ( EE) and Excel Energy ( XEL). PNM's 15.65 P/E and 1.38 PEG are lower than its competitors', as well as lower than the industry average. With a payout ratio of 51%, the dividend looks safe. PNM has traded between the mid-$20s and the mid-$30s for the past two years. If you're looking for a utility stock with a safe dividend and the potential for modest price appreciation, PNM is a good choice. I'd keep it. Otter Tail ( OTTR), representing 2.4% of Cascade Investments' portfolio (2.5 million shares worth $87 million), or 8.6% of Otter, is an electric utility company in Fergus Falls, Minn.
Otter pays a dividend of nearly 4%. With a P/E of 21 and a PEG north of 4, it's more than fully valued, especially compared with the 17 P/E and 2 PEG average for electric utilities. I can do better than 4% in a CD, and Otter is more like a price depreciation play. I'll avoid it in my Better Than Bill Gates portfolio. Six Flags ( SIX) is a theme park operator that posted impressive first-quarter results on May 9, showing a 7% increase in attendance at its parks as well as a 7% increase in per capita guest spending. Cramer interviewed Six Flags' CEO, Mark Shapiro, on May 11 for "Mad Money." Six Flags is spending $10 million on modernizing its theme parks, trimming unnecessary expenses, and training and recruiting staff. However, the first quarter only represents 5% of yearly revenue; the real action is between Memorial Day and Labor Day. Six Flags was trading around $6.10 on May 11 and is virtually unchanged now in mid-July. The results won't really be known until mid-September, when the summer season is factored in. Cramer's interview with Shapiro convinced me that management is doing the right things. I see Six Flags as a good speculative play, especially compared with Cedar Fair ( FUN), a troubled theme park rumored to be a buyout candidate. Cascade disclosed in a July 13 regulatory filing that it holds a 12.8% stake in the common stock of online media company PlanetOut ( LGBT). It turns out that PlanetOut is laying off 15% of its staff and closing offices in Buenos Aires and London. It trades at under $2. This appears to be a Cascade loser. Even Bill Gates loses money sometimes. I included these Cascade portfolio stocks along with my analysis for each in my Better Than Bill Gates portfolio. You can do your own analysis by creating your own portfolio at Stockpickr.com. And remember, at Stockpickr Answers. You can ask questions and answer them, and you can see the "Top analysts" as well as Jim Cramer's latest answers.