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Corporate scandals aren't necessarily a bad thing for investors, especially if they get in at the right time, notes David Katz, chief investment officer for Matrix Advisors Value Fund. Several "scandal" stocks did extremely well for Matrix in 2003, although Katz notes: "We did not buy the stocks because they had scandals. Rather we liked the long term business prospects of each of these companies, but were able to buy them at compelling prices as a result of major stock price sell offs resulting from very negative investor sentiment."

From Matrix's perspective, the keys to investing in a stock with "major headline risk" include:

• Rock solid balance sheets. "A must," Katz says.
• Favorable long term business prospects.
• Dominant position within their respective industry
• Structural or management changes to address the root of the problem. Management changes are "critical" for those with accounting problems, Katz says.
• Solid management team going forward.
• Business issues that are transitory and do not impair a company's long-term viability.
• Buying at an attractive price.

The 2003 returns for 10 of Matrix's scandal holdings are listed below. In most cases, the companies' original scandals broke in 2002 and the companies were on the mend in 2003, Katz says. Matrix generally bought the stocks or aggressively added to existing positions after scandals broke and fund managers became comfortable with the companies' long term outlook. The scandal holdings represented 20 to 25 percent of Matrix's equity portfolio, Katz says.