When Bad Companies Go Up In this market, not even a federal investigation can keep some stocks down.
By Bethany McLean

(FORTUNE Magazine) – Who said crime doesn't pay? Maybe that's true in the real world, but it certainly isn't the case in the stock market--or at least it wasn't the case in 2003. While the S&P 500 posted a none-too-shabby 28.7% return, one so-called Feds index--which consists of a not necessarily all-inclusive list of companies under investigation by the federal government and/or the SEC for possible wrongdoing--increased more than twice that, with a shocking 59.8% rise.

The index, which consists of an equal weighting of such notable corporate citizens as Tyco, El Paso, HealthSouth, Qwest, Symbol Technologies, and Computer Associates, was put together by the equity department at the Guardian Life Insurance Co. The worst performer of the group was Qwest, which fell 14% amid worries about the challenging business outlook. The best performer was Symbol, which soared 106%, partly because of hype about wireless networking. Special turnaround honors go to HealthSouth, which lost 98% of its value through March, hitting a low of 8.5 cents, but scored a stunning 5,365% run to finish the year up 9% amid optimism that the company could stay out of bankruptcy. And in January, HealthSouth continued that run, gaining another 10%, even though it recently upped its estimates of the size of the fraud that occurred there from some $2.7 billion to as high as $4.6 billion. Really, what does a couple of billion more matter?

Just because Guardian created the Feds index, however, doesn't mean that the company endorses a high-risk approach to investing. In fact, the truth is quite the opposite. Managing director Richard Goldman says his team seeks to identify companies that are "superior in quality"--which would exclude those where executives might end up in jail. "We created this index to capture the mood of the market," he says. It seems that mood is, well, forgiving. --Bethany McLean