Altria Group (NYSE:MO) shares rose today after the tobacco industry's legal picture became a bit clearer. The judge in the government's racketeering lawsuit stated the tobacco companies were deceiving the public, however, there were no significant fines attached to the ruling. Any other stipulations found in the 1600 page ruling will likely be appealed in the appelate courts. The judgement clears the way for Altria to spin-off its 88% stake in Kraft Foods (NYSE:KFT), which moved down on the news. The timetable for this action is likely to be between 10 and 14 weeks.

Spinoffs present an interesting opportunity for investors. When Altria spins off its stake in Kraft, it will distribute its 88% stake in Kraft to its own shareholders. Typically, a significant portion of these shareholders will sell their shares of Kraft because they are only interested in Altria. Many larger funds that acquire a large number of shares may also not want to hold Kraft. This results in selling pressure that has nothing to do with the underlying value of Kraft Foods. Even more, Kraft has an existing float that is being publicly traded. Some of these investors may sell off their shares in anticipation of this selling, which could result in a windfall. When and if this occurs, there will be many cheap shares available on the market for enterprising investors! The key to seeing if any of this will happen is watching Altria Group's SEC filings, particularly their Form 10.

Many people are also very bullish on the tobacco sector in general. This announcement should allow investors to remove the majority of the risk premium that was associated with this lawsuit, which should result in an increased share price. Many analysts are calling for $95 - $100 per share.

Advancis Pharmaceutical Corporation (NDAQ:AVNC) has been a rollercoaster ride for investors since it IPO'd back in 2003 at $9/share. Since then it has plummeted to under $1 before recently rebounding to over $4. What's causing this volatility? Well, the company is focused on the development of a new drug delivery system for antibiotics, known as PULSYS. This system essentially releases "bursts" of antibiotics over time instead of releasing it all at once. The theory was that this method would not only fight infections more effectively, but also reduce the risk of long-term immunity to antibiotics.

The company ran into trouble, however, when their clinical trials failed in mid-2004. The tests performed at the time concluded that the differences between PULSYS and normal drug delivery methods were not statistically significant. This news devastated investors as the stock sank from $8 to $3. Luckily, the company had acquired the rights to sell Keflex along with a $12m credit facility, which allowed them to stay afloat while they re-applied for approval. Recently on August 10th, the company redeemed themselves when it's Phase III trials of Amoxicillin PULSYS achieved its endpoints (showed statistical significance), and the stock reached a new 52-wk high. In a press release, the CEO said:

"'The positive outcome of this trial provides proof-of-concept that PULSYS antibiotic dosing is effective in eradicating streptococcal bacteria in humans,' stated Edward Rudnic, president and CEO of Advancis. 'If approved for marketing, we believe our once-daily version of amoxicillin would represent a major advance in the most widely used antibiotic in the U.S. and would be the first and only once-daily amoxicillin therapy approved for marketing in the United States.'"

This proof-of-concept has apparently attracted new investors. A 13G filing with the SEC on August 17th revealed a 17% ownership stake by Deerfield Capital Management through a hedge fund that invests in special opportunities. Note that this was bought through five different vehicals, so the reporting was not required until at least one of them reached 5%.

Although the company's recent 10Q was lackluster, these recent developments finally help prove that Advancis' technology does work. If it continues this success, it may be able to revolutionize the antibiotics market - a $27b market - through its more efficient drug delivery system. The company definitely has a long way to go, but it's a great stock to put on the radar.

Dell Inc. (NDAQ:DELL) fell after hours today after it released its 8K filing to the SEC, which announced disappointing earnings and revealed that it is currently involved in an informal SEC investigation into the ways it booked revenue during the past year.

Dell's earnings were cut in half from $0.41/share a year ago to just $0.22/share today, which was below analyst expectations. The company attributed this to "aggressive pricing in a slower market". Perhaps as a consequence, Dells market share did increase by 6% to 19.3% - most of that growth coming from outside of the United States. The company's CEO said the following:

"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," said Kevin Rollins, Dell chief executive officer. "Key actions include accelerating cost initiatives, increasing investments in service and support, and better pricing management."

Meanwhile, the company also announced an SEC investigation:

"In August 2005, Dell received notice from the U.S. Securities and Exchange Commission that it was conducting an informal investigation of the company. The notice stated that the investigation is not an indication that any violations of law have occurred. The SEC has requested information relating to revenue recognition and other accounting and financial reporting matters for certain past fiscal years, and Dell has been cooperating. In the course of responding to the requests, the company recently discovered information that raises potential issues relating to certain periods prior to fiscal 2006. While the company does not believe that these issues have had or will have any material impact on its financial position or the reported results of operations for the relevant years, the company's audit committee, upon the recommendation of management, has initiated an independent investigation. Management is committed to addressing any questions, concerns or issues the SEC or the audit committee may have."

Note that companies are not required to disclose anything that is not material. As a result, this is the first time we've heard of this SEC investigation dating back to August of 2005. The cause for concern is that the company's internal investigation has "discovered information that raises potential issues relating to certain periods prior to fiscal 2006". Whether or not this will have a material affect on the company has yet to be seen; however, it is something that will be held over Dell's head until resolved.

Currently, Dell is trading at a PE of around 19, which is at a discount to their industry and most of their peers. Provided Dell is able to find itself innocent of any wrong doings with the SEC and recover from its pricing mistakes, it could represent a great buy at these levels.

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