Which are the most widely held stocks in America? Are they great companies trading at fair prices? Is the average investor likely to understand the business behind the ticker? On Tuesday, we did an overview of the 20 most popular U.S. stocks, based on the number of shareholders, and took a closer look at 10 of those darlings.

The unfortunate conclusions: (1) Nearly half appear to be mediocre, debt-laden businesses; (2) none trade at low valuations (not surprisingly); and (3) it's unlikely the average investor (including fund managers) has a true understanding of most of these businesses.

If you can confidently analyze and "see-through" the financial statements of AOL Time Warner (NYSE:AOL), General Electric (NYSE:GE), and Citigroup (NYSE:C), you're in a league of your own. If you have a genuine grasp of the integrated circuit and telecom equipment markets served by Avaya (NYSE:AV) and Agere (NYSE:AGR.B), let alone Lucent (NYSE:LU), you probably work in the industry.

All told, many of the most commonly owned businesses in our country are not impressive, and most are not easy to understand or analyze. This situation -- along with the religious underperformance of managed mutual funds -- makes an even better case for broad-market index funds.

The other 10 most widely owned
Ranting aside, we only looked at 10 of the top 20, so let's hope the second group fares much better. Here's the second group of 10, again in alphabetical order and with recent performance.

      Performance of 10 Top Holdings
YTD 5-Yr. Total* Home Depot (NYSE:HD) +36% +13%Intel (NASDAQ:INTC) +52% +14%IBM (NYSE:IBM) +5% +26%Johnson & Johnson -4% +35%
(NYSE:JNJ)Lucent (NYSE:LU) +40% -94%Merck (NYSE:MRK) -3% -16% Microsoft -1% -3%
(NASDAQ:MSFT)Pfizer (NYSE:PFE) +8% -5%Verizon (NYSE:VZ) -10% -15%Wal-Mart (NYSE:WMT) +15% +43%Average return +14% -2%S&P 500 +11% -9%
*returns exclude dividends

It's good news. Shareholders are doing much better with this group of 10 than the first. In the last five years, this basket of widely owned companies outperformed the S&P 500, falling only 2% (excluding dividends) against a 9% decline in the index. Much of this group's loss was Lucent's fault, just as the first group of 10 was dragged down by several AT&T spin-offs.

Jogging your memory, here are the returns of the first top 10 companies we looked at on Tuesday.

      Performance of the Other 10 Top Holdings
    YTD    5-Year Total**AOL Time Warner         +16%      +11%AT&T  (NYSE:T)          -20%      -65%AT&T Wrles.  (NYSE:AWE) +37%      -75%*      Agere Systems           +66%      -45%^Avaya                  +280%      -54%~    Cisco  (NASDAQ:CSCO)    +34%       +7%    Citigroup               +26%      +38%Comcast  (NASDAQ:CMCSA) +24%      +26%    ExxonMobil  (NYSE:XOM)   +5%      +10%General Electric        +15%     -3.4%Average                 +48%      -15%S&P 500 Index           +11%       -9%
*Since debut 4/27/00
^Since debut 5/14/02
~Since debut 9/18/00
**Dividends not included

Returning to today's list, let's look beyond stock performance to balance sheets and valuations on free cash flow.

    P/FCF     Cash      LT DebtHome Depot   35       $2.2B      $1.3BIntel        23       12.5B       929M   IBM          19        5.4B      20.0BJ&J          23        7.8B       2.0BLucent      N/A        4.9B       5.8BMerck        17        2.9B       5.3BMicrosoft    15       49.0B       0.0Pfizer       24       15.5B       3.7BVerizon      12        1.7B      38.8BWal-Mart     71        2.4B      20.9BS&P 500      23         N/A        N/A
-FCF based on trailing 12 months, most to June 30 or March 30.
-FCF numbers do not exclude tax benefits from stock options.
-Cash and equiv. and long-term debt are most recent results, most to June 30.
-P/FCF is based on enterprise value (or market cap minus cash plus LT debt).

Excellent. Cash and debt balances here are stronger than our original group, even though we have a few outliers. Verizon has been paying down debt (it had $46 billion nine months ago), but still has $39 billion left to pay. Its one saving grace: Verizon generates $11 billion a year in free cash flow, so its debt (although ugly) may not be too burdensome.

Wal-Mart, with $3 billion in annual free cash flow, has a larger relative burden of $20 billion in debt. IBM is the only other company with big long-term debt, although with $8 billion in trailing free cash flow, its $20 billion debt appears manageable. Its confusing accounting practices are another matter, and they keep me from the stock, but clearly American investors have another opinion.

The worst
Lucent is the weakest of the pack, and the only dog. It has $22.8 billion in accumulated deficits, and its share count is rising even as management tries to right the ship. Total common shares outstanding have risen 9% in the last five years -- the very definition of kicking someone (shareholders) when they're already down.

As with all its spun-off brethren, Lucent is on the list of most popular holdings only because AT&T investors were given shares, and typically in small amounts. Several readers have written to say that selling Lucent -- or the few shares of Avaya, Agere, or AT&T Wireless they own -- would cost more in commissions than it's worth. (That's an awkward position; AT&T or Lucent should have offered odd-lot share buyouts, as was done with NCR. Barring that, perhaps a transfer to a discount broker would help.)

The best
The one inexpensive stock in the group -- you might even call it a bargain -- is mighty Microsoft at only 15 times free cash flow, well below the S&P 500's recent 23 multiple. To my eye, Microsoft is easily the best value among all 20 companies. Here are prices for Tuesday's big 10 again.

    P/FCF   Cash     LT Debt
    AOL-TW          24     $2.0B    $25.8BAT&T            24      5.2B     13.5BAT&T Wireless  N/A      4.6B     11.1BAgere Systems  N/A      727M      481MAvaya           17      724M      886MCisco Systems   25      8.4B       0.0Citigroup      N/A     17.0B       N/AComcast        133      3.4B     29.9BExxonMobil      18     12.3B      6.4BGeneral Elec.   17      6.5B       N/AS&P 500 Index   23       N/A       N/A

Well, America, we could do better, but all things considered we aren't investing too poorly. Clearly, the country's investors would have been better served by selling AT&T five or 10 years ago (when regulatory changes were an enormous risk); today, selling AT&T and its many spin-offs in favor of an index fund or stronger companies still likely makes sense (depending, in part, on tax situations).

My favorite long-term stocks among the top 20 are Microsoft, Intel, and (complexities aside) Cisco Systems. These are cash-rich companies at lower prices than other giants, and in an eventual economic upturn anywhere around the world, these three technology leaders stand to gain first and foremost. Another longtime favorite of mine is Johnson & Johnson.

My least favorites on the list are many: AT&T's many offspring and AT&T itself, because they're fighting uphill battles on crowded fronts; GE and IBM for ultra complex accounting; AOL Time Warner, Comcast, and Verizon, because I don't have a desire to inherit billions in debt with my stock purchases.

But love 'em or hate 'em, these are the 20 most widely held stocks in America. As they go, so goes much of our fortune.

Jeff Fischer may not have a fortune, but of companies mentioned, he owns J&J, Intel, and Pfizer. Want to find promising companies that almost nobody has heard of? Consider Tom Gardner's Motley Fool Hidden Gems . Want to make more money? Visit the Fool's 10 Ways to Make More Money Now .