Costco Wholesale Corporation (NDAQ:COST) shares rallied more than ten percent today after the company announced stronger-than-expected fourth quarter earnings in a 8K filing with the SEC. Shareholders were cautious going into this quarters earnings after a disappointing hiccup in August; however, it appears that the bulk retailer has fully recovered this quarter.

Costco announced a 4.7% increase in net income from 75 cents per share last year to 83 cents per share this year. Meanwhile, this quarter's same-store sales - a key measure in retailing - rose five percent. The largest gain was seen internationally where the company saw a nine percent gain.

Interestingly, the latest quarter's results also included an eight cent charge reflecting a change from monthly membership revenues to daily membership revenues used for accounting purposes. This makes the jump in revenue even more impressive.

Costco's success took many investors by surprise given last quarter's dismal 2% same-store sales and the losses reported by many others in the industry including Target stores. The company has also surprised analysts in terms of same-store sales in May, June and July.

In the end, Costco continues to outperform despite a troubling economic environment. Whether or not this continues remains to be seen, but this is definitely a stock worth watching!

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Target Corporation (TGT)
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Cadbury Schweppes (NYSE:CSG) announced today that it plans to spin-off its beverages group into a new company and abandon its efforts to auction the business off amid credit market concerns. The American beverages unit will become the world's third largest softdrink company with Dr. Pepper and 7-UP among its brands.

"While the board continues to be committed to the principle of maximizing share owner value, it does not believe current market conditions will facilitate an acceptable sale process in the foreseeable future. Accordingly, our focus is now on demerging our Americas Beverages business," said the company in a statement.

The move to spin-off comes after the company rejected a large offer from an investor consortium including Blackstone, Lion Capital and KKR because the firms wanted the seller to help with financing. Another consortium consisting of Bain Capital , TGP and Thomas Lee also failed at their attempts to purchase the drinks business from Cadbury.

Morgan Stanley and Goldman Sachs advised Cadbury to separate the business segments after evaluating the other offers. Given the fact that spin-offs tend to outperform the larger market during their first two years and the fact that this spin-off will create a major competitor in the softdrinks business - this stock is definitely one worth watching!

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VMWare Inc. (NYSE:VMW) shares closed above $100/share on Tuesday marking a new milestone in its short life as a public company. There is little doubt that the company is the leader in virtualization but many investors are concerned about the company's low float, which can exaggerate its price moves - in both directions!

The VMWare IPO shares several similarities with companies that went public during the dot-com boom. First, they kept the stock at a low float in order to spur large price movements and attract investors. Secondly, they were in a sector that was pumped up by cheerleaders who continued to talk up the stocks until the end. And finally, there was obviously a large valuation assigned to companies that simply couldn't be justified once growth slows.

VMWare is currently trading with a P/E of 156x, which would require it to grow substantially in order to be justified. According to Jon Ogg at 247WallSt, "The stock is trading anywhere from 3-times to 5-times the sales of the entire virtualization market industry-wide to 2010." Clearly, the stock is trading at a lofty valuation and a low float is helping to keep shorts away.

It is also interesting to note that EMC Corporation (NYSE:EMC) doesn't appear to share the enthusiam exhibited by VMWare shareholders. After all, the company owns 86% of VMWare and current valuations put the company's EV at $33.45 billion compared to EMC's EV of $45.7 billion. EMC shares only saw a 50% run-up following the spin-off announcement.

In the end, analysts will eventually be forced to bail on this stock but it could take awhile before reality kicks in. VMWare is definitely in a hot market, but the company's current valuation surpasses that of the industry itself. Despite any reasonable growth estimates, it is impossible to keep running. Combined, these factors make VMW a stock worth watching!

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