7 Stocks Ready to Doom Your Portfolio

Anyone who's in the market has felt the pain of investing lately. No one knows when the storm will end. But there's one thing all investors can agree on: It's more important than ever to avoid the dogs that will take a bite out of your portfolio.

To separate the chumps from the champs, I ran a screen on CAPS, The Motley Fool's investor intelligence database, looking for some of the worst companies the market has to offer.

The criteria I used for the search was simple:

• I wanted to consider only stocks that our CAPS community classifies as being the worst. At least 1,000 active players have picked these businesses, and they all carry one-star rankings, the lowest possible out of five.
• Next, I wanted to make sure that the balance sheet was leaking like a sieve. One of the best ways to do that is to look for businesses with debt-to-equity ratios of more than 2.
• Insiders of poor businesses might not be motivated, so management with slim financial ties to their company's performance is a key indicator. To screen for that, I determined that insider ownership should be no more than 1%.
• Finally, although not a hard and fast rule, a return on equity of less than 10% is an indicator of a tough and potentially failing business. As the screen will show, in many cases, these businesses won't be profitable at all.

Here's what the CAPS screen came up with. Most of the names will probably not surprise you.

Source: Motley Fool CAPS.

Please note that these are not recommendations to invest in, long or short. They are just a list of companies that you could maybe think of as possessing deep value. Just be sure to do your own due diligence.

With that said, here's what a couple of members of our community are saying about some of those companies.

CAPS member sl7vk wrote about Ford at the end of last year:

Finally, just take a close look at their balance sheet. It makes the strongest of [stomachs] ill. You're mortgaging your plants in the hope, and I do emphasize hope here, that you'll be able to turn things around by 2009. ... Then you know the end is near.

Regarding Wachovia, ww2004 recently stated:

There is a lot of speculation that the worst of the credit crisis is over. If sub-prime were the only concern that might be true but the next wave will be prime borrowers with option ARM loans. As average house prices continue to fall and option ARM rates begin to reset, over the next year banks like [Wachovia] and [Washington Mutual] will continue to perform poorly.

Are these one-star stocks ready to doom your portfolio, or could they be valid but misunderstood investments? Our CAPS community -- made up of some of the brightest minds around -- would like to know what you think. Sign up today -- it's 100% free.

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