Transocean Inc. (NYSE:RIG) shares are up over four percent in today's trading as the stock continues its run despite a credit downgrade from Fitch. The stock is up recently on an announcement of its inclusion in the S&P 500, which will force many mutual funds to begin acquiring the shares during their next rebalance. It also marks the company as an industry giant.

So, is this downgrade worth worrying about? Well, Fitch downgraded the company's debt to BBB-, two notches above "junk" status, because of Transocean's intent to devote free cash flow during the next two years towards debt repayment. Luckily, the company has a very strong backlog and recently increased the diversification of its fleet, meaning that this may not be such a bad idea. In the end, the company will probably not have a problem with cash.

However, the company did establish a 364-day $15 billion bridge loan to fund its cash dividend to shareholders (as a result of the SantaFe merger), which will be reduced through a combination of debt and equity. This is what has caused some concern by the credit agency and several institutional investors because it means the company will be leveraging itself substantially in order to unlock value in its future cash flows in today's dollars.

In the end, Transocean is banking on the fact that it is underleveraged given its future cash prospects. This may be true, but we now know how quickly markets can turn when excess leverage is used. It was probably prudent for Fitch to cut ratings, but it doesn't mean their is a problem quite yet. Combined, these factors make RIG a stock worth watching!

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Steak n Shake (NYSE:SNS) may be in for a shake-up of its own after Sardar Biglari's Lion Fund increased its stake in the company from 7.3% to 8.6%, according to a Schedule 13D/A filing with the SEC. The activist hedge fund has been targeting the company lately, voicing their concern about mismanagement of the company by the present board of directors.

The move is welcomed by many investors frustrated with the company's recent performance. Shares in Stake n Shake have plummeted in recent weeks after it reported that net earnings dropped by more than 50 percent on same-store sales down 3.8% for fiscal 2007. According to one analyst, "I think the best way to describe it at this point is basically it's a big mess, and it's going to take some time to turn it around."

In fact, things have gotten so bad that disgruntled shareholders have formed a website (EnhanceStakenShake.com) and are placing billboard ads in the Indianapolis area lobbying for board seats. The campaign is spearheaded by The Lion Fund and is very similar to what happened when it lobbied for a sale of Friendly Ice Cream - which turned out to be a great success.

In the end, it is uncertain as to whether or not these efforts will pay off. The company has suffered horrible losses and shares are trading at a low. Many investors are hoping, however, that The Lion Fund can work to unlock shareholder value using the same successful tactics that it has in the past. Combined, these factors make SNS a stock worth watching!

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Lahde Capital, a California-based hedge fund, has made more than 1,000 percent return this year by betting against subprime home loans, making it one of the world's best performing funds of all time. Andrew Lahde, the man behind the fund, noted that his returns had exceeded every estimate that he has ever offered any investor.

“We believe that all of these positions have further downside. However, the risk/return characteristics are far less attractive than they have been in the past. We do not plan on adding any positions at current levels. If the ABX indices were to bounce, we may short them again,” wrote Lahde in a letter to investors.

Lahde's portfolio consists primarily of short positions in AA down to BBB- holdings on the ABX index. The hedge fund plans to close out its positions in BBB- holdings within the next 90 days, only holding onto As and AAs, which will - according to the fund - take awhile to disintegrate but still may be worth nothing at all. Meanwhile, Lahde's new focus will be in a new fund that will short credit, as there is still plenty of bad credit to short!

In the end, this hedge fund's great performance can give us some insight into how much damage is left. Clearly, the scaling back of his position indicates that some of the mortgage problems may be coming to an end; however, there is still a lot of bad credit on the credit markets that may be worth shorting.