Financial media firm Forbes just came out with the Forbes 400, which ranks the 400 richest Americans. Bill Gates topped the list with an estimated net worth of $59 billion. This impressive amount of wealth also qualified him for second in the world, behind only telecom mogul Carlos Slim of Mexico and his net worth of $74 billion.

Gates’ fortune, of course, stems Microsoft (Nasdaq: MSFT), which grew to dominate the market for computer software across the globe. But a significant portion of Gates’ wealth has shifted to the Bill & Melinda Gates Foundation Trust. 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 foundation.
 
#-ad_banner-#The Gates Foundation has a mission to fund grants to support causes such as global health and related charitable gifting for many years to come. And given the serious commitments and long-term goals the foundation has set, it must be careful with its endowment, investing in such a way as to grow the portfolio significantly while also limiting risk. As such, it represents the ideal long-term portfolio individual investors may want to emulate. The foundation recently established several notable new positions, all of which represented a bold move into the cable television industry.

The largest new position was in cable operator Liberty Global. Liberty is the largest cable television company outside of the United States. It operates in 14 countries (primarily in Europe, Chile and Australia) and serves 31.4 million homes, offering a combination of video, voice and Internet services.

The company is growing rapidly. Revenue reached $6.7 billion last year, up close to 40% from $4.9 billion five years ago. The company generated $365 million, or $1.44 per share last year in free cash flow, up 30% from $281 million five years ago.
 
Liberty Global offers three different share classes. The foundation bought a 2.1 million share position in Liberty Global Class A (Nasdaq: LBTYA), which have shareholder voting rights, and a 706,507 share position in Liberty Global Class C (Nasdaq: LBTYK), which do not have voting rights. The quarter end market value of these two positions was $125.5 million, or less than 1% of the total foundation. Despite being small initial position sizes, they still represent a substantial sum by most measures. Also, the foundation has been known to build its stakes over time and hold onto its positions for a very long time.

Overall, Liberty represents a great way to play the growing market for cable TV internationally, and few players have its expertise to gain market share overseas. Last year, for example, it acquired Unitymedia to enter the German market. Management has experience in boosting subscribers in the markets in which it operates, serving to boost profitability and the ability to generate capital for future growth and acquisitions.

Given Gates’ ties to Buffett, his foundation is certain to find Liberty’s cash flow generation capabilities very appealing. Most investors likely miss Liberty’s profit appeal, given reported earnings tend to be low.  Last year, the company reported decent earnings of $1.15 per share, but each of the last three years saw earnings losses, even though free cash flow was positive in all these periods. This is because running a cable TV firm requires high fixed costs. This comes in the form of high depreciation and amortization expenses, which reduces earnings, but is considered a non-cash charge, meaning cash flow generation is actually high.    
  
Continuing on this theme, the Gates Foundation also bought stakes in domestic cable operator Comcast. Comcast also has multiple share classes. The foundation acquired nearly $23 million of class A shares of Comcast Corp. (Nasdaq: CMCSK), which don’t carry any voting rights, and a smaller $1.5 million stake in special class A Comcast Corp. (Nasdaq: CMCSA), which have some voting rights.

Comcast is the largest cable provider in the United States, boasting 23 million cable customers at the end of 2010. It also reported 17 million Internet users and 9 million phone customers to offer what has become an appealing offering of a “triple-play” of services. Domestic cable has proven surprisingly resilient in the face of a down economy and with growing competition from television programming from the Internet.

Comcast has also moved aggressively into owning its own content. Last year, it acquired a controlling stake in NBC Universal, which owns the NBC and Telemundo networks, the Universal Pictures film studio, and cable networks including E!, Golf Channel and VERSUS. Total company growth has been impressive. Sales through last year were up 52% to $38 billion, up from $25 billion five years ago. Free cash flow has more than tripled during this period, from $2 billion to $6.2 billion, or $2.20 per share. 

Risk to Consider: Cable TV remains at risk to a shift of viewing to the web, though this could take many years to make a sizable dent in its subscriber base.

Action to Take –> The valuations for both Liberty Global and Comcast look compelling right now. Liberty trades at more than 20 times free cash flow, which may seem high, but reflects the fact the company is one of the few ways investors can gain exposure to cable TV growth overseas. Comcast trades for less than 10 times earnings, which is extremely appealing given it is a dominant player in the United States and has branched into the lucrative content space. I like both names right now and will be keeping an eye on the Gates Foundation moves to see if it continues to build positions in both names. If it does, then you might want to consider doing the same.