Bill Gates founded Microsoft (Nasdaq: MSFT) in 1975 and for a time was the wealthiest person on the planet, thanks to the company’s ubiquitous Windows operating system. In June 2008, Gates gave up his day-to-day role at Microsoft to spend more time working with his wife at the Bill & Melinda Gates Foundation. Mexican businessman Carlos Slim has since taken the title as the world’s richest person, while Gates has shifted focus to his philanthropic efforts.

A significant portion of Gates’ $56 billion wealth has shifted to his foundation as well as his private investment vehicle, Cascade Investment LLC. The foundation received significant further support when Gates’ long-time friend and fellow billionaire Warren Buffett committed to donating a significant portion of his $47 billion net worth to the Bill & Melinda Gates Foundation.

#-ad_banner-#When you are investing such vast sums of money for philanthropic work, you need to play it safe in terms of investment risk and preserving the long-term value of the asset base. After all, the Gates Foundation has to fund grants to support causes such as global health and related charitable gifting for many years to come. As such, investors following these types of investments can sleep well knowing that they’re intended to be relatively safe.

Recently, Cascade and the Bill & Melinda Gates Foundation have been accumulating a nearly $1 billion stake in Mexican bottler Coca-Cola FEMSA S.A.B de C.V. (NYSE: KOF). Better known as Coca-Cola Femsa, it is the largest bottler of Coca-Cola (NYSE: KO) products in Latin America. Mexico is the company’s largest market in the region, at close to 40% of sales, followed by Venezuela at more than 20%. The company also serves Brazil, Argentina and most of Central America.

Coke is the dominant carbonated beverage in Latin America, with an estimated market share of 60%. Given the popularity of Coke, Coca-Cola Femsa has grown rapidly in recent years. In the past decade, sales and net income have expanded by more than 20% annually. Growth has slowed somewhat in the past three to five years but has still been impressive, as annual sales and earnings increases have both been in the mid-teens. This year will likely be no exception: analysts currently project sales growth of 17.7% and total sales of nearly $10 billion. They also expect earnings of $4.96 per share, more than 10% ahead of last year’s $4.50 per share. 

The long-term outlook continues to be bright as Coca-Cola Femsa’s core business include fast-growing emerging markets in Latin America, including Brazil. Prospects for the region as a whole continue to be “strong” and “balanced,” according to a recent International Monetary Fund report that cited Brazil and Mexico as the largest and strongest economies in the region.

Coca-Cola Femsa is also impressively profitable. Operating margins came in at 16.5% last year. Returns on invested capital — a metric that Buffett tracks closely and that measures how successfully a company is earning a return on the debt and equity on its balance sheet — is also solid, averaging in the double-digits during the past five years. Last year’s figure was just under 12% and has steadily increased during the past five years, demonstrating that management has been disciplined in earning greater returns on capital invested over time. As such, it is likely something Gates and his investment team also watch closely.

It’s hard to get an exact gauge on when Gates made the purchases, but a recent 13D filing with the Securities & Exchange Commission (SEC) was made on April 1 detailing buying activity in the first quarter. The purchases totaled about $51 million, bringing the foundation’s stake to about 3.4% of Coca-Cola Femsa’s outstanding equity. Additionally, Cascade owns 1.3% of Femsa’s equity, bringing the total to a rather sizable stake of nearly 5%, or about $775 million between the two entities. A 13D filing must be made within 10 days a transaction is made, so we have reasonable assurance that Gates remains active and interested in the name, and there are a number of other filings to suggest his investment vehicles have been actively acquiring shares throughout 2011.
 
Action to Take –> Shares of Coca Cola Femsa are bumping up against their highs for the year and currently trade at a forward price-to-earnings (P/E) ratio of 17. The stock could stop to catch its breath, but this is still a reasonable valuation, given the stellar growth the company has been reporting and the expectation that expansion will remain brisk across Latin America. Coke  effectively owns the Mexican market with a market share of about 70% and is likely to remain the dominant  beverage choice of the region. The fact that Gates has been interested in the name is a definite positive, but the solid track record and projections for more solid growth mean the company remains an appealing investment candidate in its own right.