Isilon Systems, Inc. (NDAQ:ISLN) soared 72% higher to $22.75 in its first day of trading after being priced at $13 per share. That number was already above the company's expected range of $11 to $12, which was raised not long ago from $8.50 to $9.50. Is this stock worth the price? Well, let's take a look at the company and its industry. According to their S-1/A filing with the SEC:

"We are a leading provider of clustered storage systems for digital content. As more information is recorded and communicated in images and pictures rather than text and words, the volume of digital content — which includes video, audio, digital images, computer models, PDF files, scanned images, reference information, test and simulation data and other unstructured data — is growing rapidly. Enterprises are utilizing this digital content to create new products and services, generate new revenue streams, accelerate research and development cycles and improve their overall competitiveness. Recognizing the growth and importance of this type of data, we designed and developed our clustered storage systems specifically to address the needs of storing and managing digital content. Our systems are comprised of three or more nodes. Each node is a self-contained, rack-mountable device that contains industry standard hardware, including disk drives, a central processing unit, or CPU, memory chips and network interfaces, and is integrated with our proprietary OneFS®  operating system software, which unifies a cluster of nodes into a single shared resource. To date, we have sold our clustered storage systems to more than 275 customers across a wide range of industries.

The worldwide market for external disk storage systems will grow from approximately $17.4 billion in 2005 to approximately $22.7 billion in 2010, according to estimates from a May 2006 market analysis report by International Data Corporation, or IDC. The market for storage systems dedicated to digital content is estimated to grow at a much faster rate. According to a January 2006 research report by the Enterprise Strategy Group, or ESG, certain industries including multimedia, oil and gas, scientific research, healthcare, personal Internet services and software development will experience rapid growth in file-based storage capacity. For example, in disk-based digital archiving, which is one portion of the market our systems address, ESG forecasts that the demand for storage capacity will grow from 377 petabytes in 2005 to nearly 11,000 petabytes in 2010, representing a 96% compound annual growth rate, with the substantial majority of this stored information comprised of unstructured content, such as office documents, web pages, digital images and audio and video files." (Read More)

The company's primary product is OneFS, which it describes as:

"OneFS® is Isilon's patent-pending distributed file system that provides the intelligence behind Isilon® clustered storage. It combines the three layers of traditional storage architectures - file system, volume manager and RAID - into one unified software layer, creating a single intelligent file system that spans all nodes within a cluster. OneFS combines mission-critical reliability and high availability with state-of-the-art data protection to help storage administrators worry less and do more."

Certainly a 96% compounded growth rate through 2010 represents a growth industry. Moreover, Isilon Systems already has more than 275 customers and is a solid player in this market with an innovative product. However, the company noted that it experienced a $19.2 million loss in 2005 and a $10 million loss in the first six months of 2006. Given their short operating history, it is difficult for them to project future earnings; however, their industry outlook and products appears promising. This is definitely a stock to watch during the coming year!

MathStar (NDAQ:MATH) -- CEO Douglas Pihl disclosed, in a form 4 filing with the SEC, that he had purchased 20,000 shares on December 12th at $3.99, bringing his total stake in the company to 1,537,836. MathStar shares have declined from $6.00 per share in July of this year to their current levels around $4.15 per share; however, the stock has recently formed a high-volume base between $3.70 and $4.15. This nearly $80,000 insider purchase could indicate a possible turnaround, making MATH a stock worth watching.

Cimarex Energy Co. (NYSE:XEC) -- Chairman and CEO F. H. Merelli disclosed, in a form 4 filing with the SEC, a 20,900 share purchase today at prices ranging from $37.10 to $37.36, bringing his total stake in the company to 280,646 shares. The oil and gas exploration company faced a decline from $45 to $35 per share in 2006 as the company faced exploration and production issues. Recent insider buying could indicate that these issues will soon be resolved, which could mean share appreciation. This is definitely a stock to watch.

Advanced Microdevices Inc. (NYSE:AMD) CFO Robert Rivet met with analysts today in New York to discuss the company's financials and industry prospects. Investors and analysts were particularly focused on AMD's recent acquisition of ATI, which some thought could hurt the company's balance sheet. However, Rivet dispelled these concerns, stating that cost cuts from the ATI deal were much higher than expected and projected that ATI would add $80 million to the company's $160 million in new revenue this year as a result of the acquisition. The CFO also noted that he expects laptop chip demand to outpace desktop chips in 2007 - something which the company is well prepared for. Meanwhile, AMD CEO Ruiz told analysts, "The future is incredibly bright". These comments moved the stock up over 4% in intraday trading.

But is AMD a buy yet? Well, the company's shares have cut in half from $40 to $20 per share in 2006, after lackluster results combined with the then-questionable purchase of ATI caused investors to dump their shares, and Intel Corporation (NYSE:INTC) shares also faced a steady decline from $25 to $20 per share during the same period. But where do the two companies stand in terms of valuation? Well, one of the best ways to quickly determine valuation is using the PEG ratio, because it takes into account a company's growth rates. AMD currently trades with a PEG of 1.20 while INTC's stands at 2.06, with the industry PEG at 1.57. This indicates that AMD shares remain undervalued in relation to their competition, and particularly in relation to Intel. This discount was likely due to uncertainty surrounding the company's acquisition of ATI along with a poor industry outlook; but, with AMD's new projections today, along with their comments regarding the ATI cost savings, we could AMD shares return to industry valuations. This makes AMD a stock worth watching.

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The Home Depot Inc. (NYSE:HD) has authorized the repurchase of $3 billion of outstanding shares through an accelerated share repurchase agreement.

Dell Inc. (NDAQ:DELL) is delaying their 10-Q filing with the SEC after it reported a probe into its accounting practices.

Adobe Systems Inc. (NDAQ:ADBE) reports Q4 EPS OF $0.33, in-line with estimates, with revenues coming in at over $682 million.  

Intuit Inc. (NDAQ:INTU) announced its intention to acquire Electronic Clearing House Inc. (NDAQ:ECHO) for $18.75 per share in cash, in a transaction worth approximately $142 million.  

E*TRADE Financial Corporation (NYSE:ET) announced 2007 earnings guidance of $1.65 to $1.80 per share on Total Net Revenue of $2.75 to $3.0 billion.

YRC Worldwide Inc. (NDAQ:YRCW) lowered their fourth quarter 2006 EPS to $0.95 to $1.05 and their full year 2006 earnings to $5.00 to $5.10 per share.

California Micro Devices (NDAQ:CAMD) expects revenue between $16.5 and $18.5 million compared to $19.6 million a year ago. Current Q3 revenue consensus is $17.7 million.

Asta Funding, Inc. (NDAQ:ASFI) report Q4 EPS of $0.93, versus the consensus of $0.78; revenues came in at $30.5 million versus the consensus of $25.3 million.

Thermo Fisher Scientific Inc. (NYSE:TMO) is raising its 2007 EPS to a range of $2.35 to $2.45, from $2.27 to $2.37. Current FY07 EPS consensus is $2.36; revenues in 2007 are expected to grow to $9.4 to $9.5 billion vs. current consensus of $9.36 billion.

Lehman Brothers Holdings Inc. (NYSE:LEH) reports Q4 EPS of $1.72 versus the consensus of $1.68; revenues came in at $4.5 billion versus the consensus of $4.41 billion.

Bear Stearns Companies Inc. (NYSE:BSC) reports Q4 EPS of $4.00, above the consensus of $3.36; revenues came in at $2.4 billion versus the consensus of $2.2 billion.

Magellan Health Services, Inc. (NDAQ:MGLN) expects to generate net revenue in the range of $2.05 billion to $2.15 billion (consensus is $2.02 billion) for the 2007 fiscal year; net income in the range of $68 million to $83 million.

Ryerson Inc. (NYSE:RYI) may find itself in trouble soon after Harbinger Capital disclosed a 9.7% stake in the company and voiced their concerns with management and the company's board of directors. The materials distribution company went from a high of $31 earlier this year to its current levels in the low $20s, as its lackluster numbers failed to impress investors. These numbers have also prompted investors like Harbinger to take a more active role in unlocking shareholder value.

In the Purpose of the Transaction section of the SC13D form filed today, Harbinger elaborated on their problems with the company:

"The Reporting Person initially reported their investment on a Schedule 13G on November 27, 2006. Since that time, the Reporting Persons have examined the financial and operating performance of the Issuerand have grown  increasingly concerned that the board of directors and senior management of the Issuer have not been appropriately vigilant in their management of the Issuer, particularly with respect to its lack of focus on profitability and the management of inventory.

The Reporting Persons observe that the Issuer's peer companies have been consistently successful in turning inventory more rapidly than the Issuer and have also consistently earned high gross, operating and net margins throughout the business cycle. Given this persistent under performance by the Issuer since it was established as a stand-alone enterprise in 1999, the Reporting Persons have concluded that the board of directors has provided insufficient oversight of management's ability to deliver acceptable performance in the key factors that are critical to maximizing the value of the Issuer's existing asset base, geographic presence and product portfolio. The Reporting Persons believe that the current board of directors, while talented and undoubtedly qualified in general business matters, lacks the specific qualifications necessary for understanding the value drivers within the metals processing and distribution business which drive acceptable shareholder returns.

As a result, the Reporting Persons are considering a range of actions by which they may be able to encourage the Issuer to improve its performance. Such activities may include taking a position (including by contacting management and other shareholders of the Issuer) with respect to potential changes in the operations, management, or capital structure of the Issuer as a means of enhancing shareholder value. Such suggestions or positions may include one or more plans or proposals that relate to or would  result in any of the actions required to be reported herein. In addition, the Reporting Persons are also considering nominating one or more persons for election to the Issuer's board of directors at the Issuer's next annual meeting of shareholders." (Read More)

Ryerson is currently trading at just 8.15x earnings compared to an industry average 16.36x, making the company's stock worth $44.50 at the industry's valuation. Harbinger maintains that this poor valuation is a result of lackluster growth stemming from poor inventory turnover and low margins. If the company is able to improve these numbers, it could mean significant returns for shareholders. This makes RYI a stock definitely worth watching closely into 2007!

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Midwest Air Group, Inc. (AMEX:MEH) said it has received an unsolicited takeover bid from AirTran Holdings (NYSE:AAI) today for $11.25 per Midwest share in cash and and stock, in a deal worth $290 million. The bid was first discussed back in October when AirTran Chairman and Chief Executive Joe Leonard sent a letter to Midwest executives stating that he was interested in such a transaction. On December 6th, the company issued a response to this letter stating that the offer would not be in the best interest of shareholders. The communications were made public today in an 8-K filing by AAI, sending the stock up over 20% to settle at around $11 per share. AirTran said that it went public with the offer in part because of Midwest's "extensive" defenses and opposition to the proposal.

Would the deal make sense? Well, a combined company would have pro forma revenue of about $3 billion in 2007 and 1,036 daily departures with 173 unique markets between 74 cities across the U.S., according to AirTran. Furthermore, they said that a deal could be completed by the end of the first quarter of 2007 and would add to earnings by the end of the first full year following the close. This makes it a very tempting target for AirTran, who said that they could offer more if they were able to conduct due diligence. The airlines have also been on fire recently: This is the second hostile bid in the airline industry in recent weeks, after U.S. Airways offered $8.5 billion in cash-and-stock to acquire Delta Air Lines. And there is also continued speculation surrounding Northwest Airlines and Continental Airlines, who are rumored to be considering M&A themselves. Combined, these factors make MEH a stock to watch closely during the coming months.

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Cost-U-Less, Inc. (NDAQ:CULS) is under pressure yet again from Monarch Activist Partners as the hedge fund increased its stake and again demanded that the company put itself up for sale. The hedge fund first got involved with Cost-U-Less back in September, when it issued its first 13D filing disclosing a 5.4% stake in the company with purchases dating back to early August of this year. Since then, Monarch has held multiple discussions with management over the phone discussing ways in which the company could unlock shareholder value. In particular, the hedge fund urged management to consider putting the company up for sale. Monarch filed its most recent 13D/A filing yesterday, which disclosed a 6.4% stake in the company and elaborated on their reasoning for suggesting a sale of the company. In a letter attached to the filing, they said:

"While we appreciate your desire to grow the business organically, it is apparent that the market refuses to assess fair value to the company in its current form. A quick review of your peer group clearly states this point. Currently, Pricesmart (PSMT), your self-acknowledged closest competitor, trades at an Enterprise Value to EBITDA multiple of close to 16 times, whereas CULS trades at approximately a 4.5 multiple. Taking a very conservative valuation approach by applying a 40% discount to the median EBITDA multiple of your industry peer group, CULS is worth at least $12 a share.

Compounding matters, the business, according to your latest earnings release, is dealing with a 9% increase in operating expenses which is largely attributed to rising utility expenses, an issue that does not lend itself to a quick resolution. Outside of operating expenses, the cost of being public with Sarbanes Oxley expenses and other regulatory costs makes the rationale of "going it alone" far less viable.

We fail to see how even the most ambitious growth plan will resolve the deep multiple discount the market attributes to CULS. Not to mention, given the capital required to open each new store combined with all the site specific requirements, rapid expansion appears highly improbable. In light of the issues raised in this letter and as a significant shareholder we ask you and the Board to engage the services of an investment banker to facilitate the sale of the company. While you have stated that the Board continues to look at all options and keeps an open mind to any potential offer, it is time for the company to take a far more proactive stance." (Read More)

According to this analysis, CULS should be worth near $12 a share, which is a hefty 44.75% higher than the stock's current price. Monarch also noted that if management failed to acknowledge their advice, they may choose to seek board representation - in other words, they threatened a proxy battle. Those considering investment in CULS should know that the stock is thinly traded, and therefore subject to increased volatility. Moreover, if management decides against putting the company up for sale (which is a definite possibility), a proxy battle is often a long and drawn out process. And finally, there is no guarantee that there will be bidders in the $12/share range. However, if Monarch is able to convince or force management to put the company up for sale, it could mean a very nice 40%+ return on investment in (likely) less than a year. This makes CULS a stock worth watching closely into 2007.

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Nasdaq Stock Market, Inc. (NDAQ:NDAQ) took a more hostile stance in its bid for the London Stock Exchange today, refusing to raise its bid higher than $5.3 billion unless the LSE's board accepts a friendlier approach or another bidder emerges. Moreover, they appealed to shareholders by stating that if they received support from just an additional 20% of the outstanding shares, they would alter the offer to "unconditional" (making it a hostile bid). The LSE quickly responded today by saying they would issue a statement to shareholders soon explaining why they rejected Nasdaq's buyout offer. Currently, Nasdaq owns approximately 30% of the LSE, giving it significant leverage over other potential bidders. This, combined with the fact that the financing required on this transaction would total more than $5.03 billion, make the probability of a significantly increased bid rather unlikely. Shareholders may also get a little nervous if the transaction fails since the company nearly doubled this year, thanks in part to the M&A speculation surrounding the exchange. Regardless, these are definitely two stocks to keep an eye on between now and January 11th (when the offer expires).

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Nestor Inc. (NDAQ:NEST) has been seeing an increasing amount of open market insider buying lately (revealed in Form 4 filings with the SEC) ahead of its quarterly earnings release. The trend continued today as the company's CEO, William B. Danzell, disclosed a 20,000 share purchase valued at almost $28,000, bringing his stake up to 10,069,396 shares. Yesterday, the company's director, Michael C. James, also disclosed purchases totaling 20,000 shares, bringing his stake up to 331,641 shares. There were several other recent open market purchases by these two earlier this year, each totaling around 20,000 shares. The buying began just after the company transferred its listing to the Nasdaq Capital Market and announced that it was cutting 20% of its workforce in an effort to reduce current operate expense levels and focus on the company's operations on program delivery and support. It appears that management is confident that the increased liquidity of the Nasdaq Capital Market combined with their efforts to reduce costs will help turn the company around after its drop from $4 earlier this year to just $1.35 now. It is also worth noting that much of management holds many out-of-the-money stock options, which should motivate them to do anything they can to increase the share price. This makes NEST a stock worthy of our watchlist.

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Six Flags, Inc. (NYSE:SIX) revealed their game plan for 2007 today, in which they announced deals with Thomas & Friends, The Wiggles, Tony Hawk, mtvU, Cold Stone Creamery and Heinz. But perhaps most notably, the company announced that it would reach a decision on potential asset sales by the end of the year and added that if the parks are sold it will be strictly as ongoing concerns. Six Flags had said that it was considering the sale of some of its parks in an effort to reduce is $2.2 billion in debt last year; however, many are skeptical that the the company will be able to receive a bid high enough to meaningfully reduce the company's debt - a number that may need to be as high as $800 million. This skepticism comes after the company's unsuccessful attempt to sell itself last year along with a rumored $650 million offer for six properties from MidOcean Partners and theme-park operator Herschend Family Entertainment Corp - a number far less than expected.

With shares already down 20% this year, investors are becoming increasingly restless. Investors were hoping for a clean turnaround after Syder, the company's largest investor, won a three-month battle with former CEO Kieran Burke for control of Six Flags last year. However, shares have only continued their decline with the recent quarter still showing decreases in net income and revenues across the board. Management insists that this is a "transition year", and the situation would improve through 2007. If the asset sale is successful in attracting meaningful bids and management is able to reduce the debt load and turn around the company, Six Flags could see significant share appreciation. This makes SIX a stock worth watching over the following year.

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