Wednesday, November 18, 2009: Issue #1140

To celebrate my parents' anniversary, I took the family to see Grease last weekend. As musical theater buffs, I figured that they'd love the seeing the show, especially with my kids who had never seen a Broadway quality production.

Unfortunately, they still haven't. The show stunk. The "actor" who played Danny Zuko couldn't act. And American Idol winner Taylor Hicks was so bad as Teen Angel, it was laughable. It was one of the worst productions I've ever seen – and I should know, as I've been in some pretty awful shows (if you saw Last Exit to Brooklyn in San Francisco in 1995, I apologize).

But the purpose of this column is not a theater review, but rather the first of a two-part discussion of value. The tickets were quite expensive and there are few things more aggravating than not getting value for your money.

This often applies to investing, too. Here are the four overvalued stocks to avoid adding to any portfolio…

Avoid a Portfolio Beating From These Four Overvalued Stocks

When the market reverses, overvalued stocks are often the ones that take the biggest beating. So with many calling for the market to do just that, I screened over 5,000 stocks to come up with a few that are as overvalued as those Grease tickets.

Specifically, I looked for companies that are trading at more than 20 times cash flow, with earnings growth of less than 5% and a declining return on assets. Here's the list…

• Cohen & Steers (NYSE: CNS)

The company is an asset manager, with a specialty in real estate. Since the market bottomed in March, the stock has nearly tripled in value. But that's where the good news ends. Revenue will decline for the second straight year in 2009. In addition, operating margins are razor thin and the stock is trading at 34 times cash flow.

The market already seems to have priced a healthy real estate rebound into CNS shares. But any suggestion of another downturn in real estate and CNS shareholders may feel worse than Danny Zuko after being stranded at the drive-in.

• Harley Davidson (NYSE: HOG)

In an economy where everyone is worried about the job market, it's no surprise that big ticket, discretionary items like a new motorcycle are low on the priority list.

Harley Davidson's results prove this. Revenue is expected to fall by 22% in 2009 and shrink another 1.3% in 2010, according to estimates.