I got called out.

In a column back in July, I listed five terrible stocks that Wall Street rated as "buys." These companies had loads of debt and trailing losses and were trading near 52-week highs. Here's what that list looked like.

Company

Description

% of 52-Week High

Debt/Capital

Net Income (TTM)*

Analyst Recommendation

Virgin Media (Nasdaq: VMED) Cable and communications in the U.K. 95% 82% ($553 million) Buy
Sun Communities (NYSE: SUI) Manufactured homes 88% 110% ($6 million) Buy
Vonage (NYSE: VG) Telecom over the Internet 87% 138% ($34 million) Buy
Las Vegas Sands (NYSE: LVS) Casinos in Las Vegas and Macau 87% 59% ($302 million) Buy
US Airways (NYSE: LCC) Airline 84% 111% ($147 million) Buy

Source: Capital IQ, a division of Standard & Poor's. Based on figures as of July 16. *Trailing 12 months.

Seems simple enough that these companies should be avoided, right? That's exactly what I argued. Here's the problem. Motley Fool community member dragonLZ decided to look back and calculate the returns of these five companies since I pooh-poohed them. The result? As a group, they're all crushing the market. And not by a little, either. Las Vegas Sands has almost doubled! Check out these returns.

Company

Return since July 16

Virgin Media 41.1%
Sun Communities 20.5%
Vonage 3.3%
Las Vegas Sands 95.7%
US Airways 28%
Average 37.7%
S&P 500 8%

Source: Google Finance.

Even worse, I suggested that readers look into three companies with better fundamentals: graphics chipmaker NVIDIA (Nasdaq: NVDA), seed and pesticide giant Monsanto (NYSE: MON), and pharmacy Walgreen. Their performance?

 Company

Return since July 16

NVIDIA 12.3%
Monsanto 5.1%
Walgreen 14.6%
Average 10.7%
S&P 500 8%

Source: Google Finance.

If you're following along, you see that both groups are beating the market; however, the "terrible" companies are trouncing my group of higher-quality companies.

But I've got one more shocker for you. Even with my group's returns trailing by more than 20 percentage points, I stand by my call and think I'll be ahead over the next five years.

Why?
Let's remember that I made my call less than four months ago. Time works solidly against bad companies. And make no mistake, these five companies are bad.

  • Virgin Media: I'll make my case with two figures. Number of years since 1995: 15. Number of profitable years by Virgin Media since 1995: 1.
  • Sun Communities: This company is a REIT (real estate investment trust) that develops manufactured housing communities. Kind of a red flag when it reports losses throughout the height of the housing bubble.
  • Vonage: Vonage is to voice-over IP what NetZero is to Internet access -- increasingly irrelevant.
  • Las Vegas Sands: I have no confidence this casino will ever stop loading up on debt and growing for growth's sake.
  • US Airways: Basic rule of investing -- with a rare exception, airline stocks crash and burn.

In an up market like we've had recently (e.g., the returns for September were the highest for that month since 1939), the imperfections of these terrible companies are masked. But at some point, we'll experience difficulties. And when the tide ebbs, it'll be companies like these five that will be standing naked.  

A better option
I have nothing against trash-bin-diving, but sometimes what you get is just garbage. So I'll stick with NVIDIA, Monsanto, and Walgreen over these five terrible stocks.

For five more stocks picked by five Motley Fool analysts, click here to get our free report: 5 Stocks The Motley Fool Owns -- And You Should Too. I'll vouch for the last of the five stocks because it was my pick.

Anand Chokkavelu owns shares of NVIDIA and can't wait to talk to dragonLZ in five years to do a post-mortem. NVIDIA is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a synthetic long position on Monsanto. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.