Nonsensical Nine

[John Dorfman writes] Each year I compile a warning list of nine stocks that I think display striking danger signs. I call them the Nonsensical Nine. This year the warning list includes such well-known stocks as Celgene Corp., Continental Airlines Inc. and Dun & Bradstreet Corp.

Since I started the list in 2001, members of the Nonsensical Nine have averaged a one-year return of negative 7 percent. The S&P 500 over the same five years has averaged a return of positive 3.4 percent. Three of the five Nonsensical Nine lists have produced a negative one-year return, and four of the lists trailed the S&P 500.

For the Nonsensical Nine, I look at U.S. stocks with a market value of $1 billion or more, selling for at least three times book value (assets minus liabilities per share). Then I select the three stocks that sell for the highest multiple of earnings, the three that sell for the highest multiple of revenue, and the three that have the highest ratio of debt to equity.