TXCO Resources Inc. (NDAQ:TXCO) shares rallied recently after an activist hedge fund notified that it would be nominating its own slate of directors for the company's board in order to unlock shareholder value. Shareholders and investors are hoping that this move will help the company capitalize on assets to bring the company's shares to its intrinsic valuation.

Daniel Loeb's Third Point LLC, which owns an 8% stake in the company, indicated in the regulatory filing that they believe the company's stock represents an attractive investment opportunity. Moreover, they contend that the potential value in the company's existing development projects has not been adequately recognized in the market price of the common stock. This could be due to the fact that management lacks the development experience and technical expertise to manage the opportunities presented by those projects.

As a result, the activist hedge fund indicated that it would be nominating its own directors to the company's board during the company's next annual meeting in 2008. Third Points three candidates would constitute half of the company's board and would provide the technical expertise to hire and manage executives capable of capitalizing on the company's existing development projects.

In the end, this is great news for shareholders as it could mean significant share appreciation over the short-term. The stock is also trading at a fundamental discount, which means that it has a little downside protection built-in. Combined, these factors make TXCO a stock worth watching!

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