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Recently, one of my Seeking Alpha colleagues posted a piece on what he considered his "core holdings" - stocks (most generally regarded as blue-chip investments) that he would buy and hold forever. Among these stocks considered core holdings were Coca-Cola (KO), Kimberly Clark (KMB), Colgate-Palmolive (CL), Procter & Gamble (PG), McDonald's (MCD), Altria (MO), Reynolds American (RAI), AT&T Inc. (T), Verizon Communications (VZ), Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Wal-Mart Stores, Inc. (WMT), Waste Management, Inc. (WM), Intel Corporation (INTC), Microsoft Corporation (MSFT), Southern Company (SO), and SCANA Corporation (SCG).

Reasoning for including these holdings in this category was as follows:

I have invested in these companies and do not trade these companies. Why? Because I believe that these companies reflect all of the things I look for in a stock. They are market leaders, they pay annually increasing dividends, and they grow those dividends at a rate faster than inflation.

On the other hand, companies like Exxon-Mobil (XOM), Chevron Corporation (CVX), Nucor Corporation (NUE), Caterpillar Inc. (CAT), Cummins Inc. (CMI), Emerson Electric Co. (EMR), Illinois Tool Works Inc. (ITW), Target Corporation (TGT), and many others are the ones that I use in my portfolio to generate cash, through buying them at a value entry point and trading them when they reach an appreciation target.

I'd like to take a look at a number of these stocks and see which ones are currently trading at perfect entry points with respect to future target price, intrinsic value, and technical indicators, among other factors. I've already done a bit of analysis on Johnson & Johnson, and investors may be especially interested in that piece given the price movements above $67 for JNJ shares in the last weeks. It turns out that my bullishness in May paid off for JNJ. Similarly, investors in AT&T may be interested in this piece from earlier this year on the fundamentals of their company. Given these outcomes, my next several articles will focus on the various other companies listed above. Looking forward to a healthy discussion with all on fundamentals, technicals, and overall market sentiment to come.

Let's begin with Coca-Cola, Inc., one of my favorite companies. Long a favorite of value investors such as Warren Buffett, KO is on most people's lists of stocks to "buy and hold forever." Is this justified? Many equity analysts seem to think so. The Coca-Cola Company has perhaps one of the most recognizable brands in the world. Manufacturing, marketing, and selling nonalcoholic beverages around the globe, U.S. equity shares of this Atlanta-based firm have been trading just below $80 levels in recent weeks. With a beta of 0.53, annual dividend yield of 2.6%, and market capitalization of $177 billion, investors can be confident they are buying into a remarkable stable organization with a purchase of KO shares. P/E for KO stands at 20.86, a bit below the industry average of 21.3 but above the S&P 500 index's 15.7. In terms of stock price performance, KO has had an outstanding several years. The recession-proof nature of this beverage company has clearly demonstrated itself; over the last 3 months KO has returned 6.77%. Over the last year, KO has returned nearly 15%; 3 year annualized return stands just over 17% for investors.

Net operating cash flow has risen over 7.6% from Q1 of last year; this is especially compelling when we take into account that the average industry cash flow growth rate is -65.74%. In terms of revenues, KO had revenue growth of just under 6% in the first quarter of 2012; net income grew nearly 8% in this period and EPS grew 8.5% in this period as well. 3-year CAGR for revenue growth, net income growth, and EPS growth, respectively, stands at an impressive 14.11%, 15.55%, and 15.66%. Looking at return on equity, the top of class equity continues to outperform, confirming what most educated investors already know:

Return on equity (%)
 Q1 2010Q1 2011Q1 2012
KO28.5137.4826.59
Industry average18.7221.8718.40
S&P 50010.3913.5714.55

Looking at the income statement for KO, all is well. Net sales, EBITDA, EBIT, and net income all rose substantially from the first quarter of fiscal 2011 to Q1 2012. Net sales growth was most refreshing: $10.55 billion in Q1 '11 to $11.14 billion in Q1 '12. Balance sheet perusal builds confidence even further. Cash and cash equivalents were at $12.28 billion in Q1 '11, and stood just under $16 billion in Q1 '12. Total assets were just above $76 billion in Q1 '11, and in Q1 2012 were nearly $84 billion. Equity grew nearly $600 million in the meantime.

Potential downside could arise from short-term cash shortages; financial difficulties in the future could certainly arise as a result of some profitability metrics decreasing. While S&P's credit rating of KO remains an A+, there are some reasons for concern in the medium to long term. For instance, gross profit margin decreased from 67.39% in Q1 '11 to just under 65% in Q1 '12. EBITDA margin decreased from nearly 29% to 27.4% over this time, and operating margin decreased from over 24.1% to 23.42% in this period as well. Return on assets decreased from nearly 16% to 10.4% in this while return on equity fell from 37.5% to 26.6% in this year. More downside risk could stem from movements in the foreign exchange markets and weather problems affecting distribution and supply. Critics of the bullish thesis on KO may point to these indicators and issues as key reasons not to invest in this company, but I believe that the overwhelming majority of the evidence in KO's favor outweighs these profitability metrics significantly.

In terms of earnings yield, revenue growth, and return on equity, then, KO is a brilliant pick. Despite the overwhelming support for this company in recent months and years, and the media attention it has received, I contend that it is still a fantastic candidate for investors' portfolios. Taking a look at the beverage field and peer companies makes this somewhat easier to comprehend. From a price/earnings perspective at least, KO's 20.86 is right in the middle of the pack. Let's take a look at other firms in the sector: Monster Beverage Corp (MNST) has P/E of 44.91; Cott Corp (COT) has P/E of 22.32; Embotelladora Andina SA (AKO.B) has P/E of 23.3; Coca-Cola Hellenic Bottling (CCH) has P/E of 20.73; Coca-Cola Femsa SAB (KOF) has P/E of 32.34; Dr. Pepper Snapple Group Inc (DPS) has P/E of 16.09; PepsiCo Inc has P/E of 17.46; National Beverage (FIZZ) has P/E of 16; etc.

One final thought: sales rose over 32% in 2011, primarily as a result of management's drive for growth and innovation in distribution. Relationships with bottlers are at fantastic places, philanthropic giving and community advocacy are at impressive levels, and the brand name is growing stronger than ever. I wouldn't be surprised to see KO at over $85 levels in the next 10-15 months. With nearly 150,000 employees and over 250,000 shareholders, this American icon isn't going anywhere anytime soon. Those who are skeptical that this is a good time to buy may consider writing near out-of-the-money puts on KO to take advantage of a short-term premium while waiting for the share price to come down to a desirable level due to market volatility. Good luck.

Source: Perfect Entry Point For Some Forever Stocks: Coca-Cola In Focus

Additional disclosure: I may initiate a short position in JNJ over the next 72 hours.