E*Trade Financial (NYSE:ETFC) is set to make several changes as a part of its broad restructuring plan. The brokerage announced that it will close its institutional trading business and sell its $3 billion asset-backed security portfolio. E*Trade also appointed a former Wachovia official and mortgage industry veteran Robert Burton as chief operating officer of its banking segment. Shareholders are hoping that these and other changes will help change the fortunes in the troubled brokerage.

E*Trade’s restructuring plan is focused on further reducing balance sheet risk and leverage in order to weather the storm and stay alive. These efforts included a sale of some $3 billion in securities, including a combination of mortgage-backed securities and muni bonds. The sales resulted in a realized loss of less than $5 million and should be settled by February. Meanwhile, the brokerage also announced that it would reduce its wholesale borrowing levels by cutting about $3.5 billion in Federal Home Loan Bank advances and repurchase agreements in this quarter.

E*Trade also announced that it saw “turnaround momentum” in its customer behavior as it added around 87,000 gross new accounts in December, ending the year with $190 billion and $33 billion in cash. The brokerage unit is also forming a special committee in order to explore ways to reduce the risk of its real estate portfolio after recently selling of a $3 billion portfolio of securities for $800 million. The company plans to provide additional details on its restructuring plan on January 24th.

In the end, this is all good news for ETFC shareholders who have been experiencing a tough time recently. These efforts should result in a significant reduction in risk along with more customer accounts and revenues. If successful, these measures could prove to be enough to help E*Trade recover to its previous price levels. Combined, these factors make ETFC a stock worth watching!

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KB Home (NYSE:KBH) shares dropped sharply today after the homebuilder posted a $772.7 million net loss for the fourth quarter – nine times wider than the loss that analysts expected. In reality, much of the loss was due to a $514 million non-cash charge due to changed accounting for tax purposes. However, many remain convinced that there is much more pain to come in the housing market.

Slow business has led many analysts to speculate that homebuilders will not be profitable until 2009 or 2010 and may face even more write-downs. Notably, deferred tax assets will eventually recover and produce a gain but it could be awhile. Meanwhile, average housing prices dropped 12% in the fourth quarter to $247,800 while supply remains extremely high. Also, more buyers are cancelling their contracts for homes than analysts expected.

The mortgage market isn’t looking any better either. Countrywide (NYSE:CFC) shares were also off sharply yesterday amid speculation that there was a forthcoming negative announcement that many assumed to be a bankruptcy. The mortgage company denied the rumors, but that didn’t stop shares from dropping nearly 30 percent amid falling housing prices and a surge in foreclosures.

Mortgage lenders are still faced with subprime exposure and an increasing number of foreclosures. Additionally, many prime loans granted to the rich may also face defaults as many were financed with adjustable rate mortgages with teaser rates that are due to reset higher over the next months and year. New government lending standards should prove to curb problems in the future, but there is still a lot of work ahead of the mortgage lending industry.

In the end, the housing market still faces an uphill battle due to an increasing supply of homes and an increasing number of buyers defaulting. It could be awhile before this problem turns itself around…

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Unisys Corporation (NYSE:UIS) shares fell sharply today after a large investor urged the company to immediately hire an investment banker and review all available strategic alternatives. The news comes after shares in the technology company hit a new 52-week low as Wall Street continues to push the company down despite several new contracts. Shareholders are hoping that this will change, however, with the involvement of activist hedge funds.

MMI Investments, which owns 9.9% of the company, sent a letter to the board arguing that its restructuring benefits were not enough to correct Unisys’ dramatic undervaluation. The activist hedge fund believes that the undervaluation is due to flaws in the company’s strategic configuration.

“[We] felt tremendous frustration with the seemingly continuous stream of management, operational and financial missteps that have characterized recent performance, obscuring otherwise impressive growth in EBITDA as a result of the restructuring and undermining the significant intrinsic value of Unisys’ U.S. Government business,” said MMI Manager Clay Lifflander. “Moreover we are mystified by management and the board’s inaction in the face of Unisys’ ruinous stock price performance over the past year.”

MMI insists that the best option would be a sale or spin-off of its U.S. government business unit. The move would, according to the hedge fund, allow for the highest multiple of the business to have its value recognized, raise equity capital for the company at an attractive price, and provide employees of that unit with financial incentives as owners.

Unisys announced today that they received the letter and would evaluate it; however, they were quick to note that they were already in the middle of refocusing their business, cutting costs, and getting rid of assets that are not central to their operations.

“Unisys is executing a major, multiyear repositioning plan and has made significant progress in enhancing its profitability by refocusing our business, reducing costs, and divesting noncore assets,” a Unisys spokesman said yesterday.

In the end, this is all good news for shareholders. Whether or not the company will take any action on these proposals remains to be seen, but any sale or spin-off could prove to be a windfall for troubled Unisys shareholders. Combined, these factors make UIS a stock worth watching!

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Starbucks Corporation (NYSE:SBUX) announced a broad restructuring plan aimed at turning around the specialty coffee maker. The company began by ousting CEO Jim Donald yesterday and handing the reins to current Chairman and founder Howard Schultz to bring investors some relief after a steep 48 percent decline in the share price during the last year. Shareholders applauded the news by sending shares up over 9 percent in today’s session.

Starbucks announced in a letter to employees that it had to shift focus away from bureaucracy and back to customers. Many argue that the firm’s rapid expansion forced it to cut down on aspects that made its cafes an exciting place with new products. Now, the company faces increased competition from fast food joints that are quickly adding premium coffee blends and a classier atmosphere to their own locations. Combined, these factors have put Starbucks in a tough spot.

However, shareholders are confident that Schultz is the right man to orchestrate a turnaround. He is well known as a fighter with tough standards and a strong desire to succeed. He stuck with the company as its chairman since stepping down and oversaw many side projects – such as Starbucks’ move into the music and film business. Schultz plans on restructuring the firm’s U.S. locations by giving employees better training and tools and launching new products, which he claims will have just as much of an impact as the Starbucks Card and its Frappuccino products.

In the end, this is all great news for shareholders. Schultz had what it takes to build up a billion dollar business behind coffee and now the same great leadership is again behind the company. Shareholders are hoping that he will be able to orchestrate a turnaround and make Starbucks a great brand once more, able to stand up to mounting competition. Combined, these factors make SBUX a stock worth watching!

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CNET Networks (NDAQ:CNET) moved higher this morning after a group of investors, led by Jana Partners, nominated seven candidates to the company’s board of directors. The investors are hoping to curb the stock’s continuing decline by assembling an experienced team of directors to orchestrate a turnaround. Shareholders are hoping to see some changes as shares sit off their 52-week lows but well below intrinsic value.

“This effort is about taking an underperforming company and increasing shareholder value by building on its top-notch editorial talent and premier internet assets,” said Barry Rosenstein, Manaing Partner at Jana Partners. “Together with Paul Gardi and Spark Capital, we have assembled a group of nominees we believe has the technical skills and business experience to reverse CNET’s ongoing underperformance and start delivering value for shareholders.”

Jana Partners noted that in addition to its 8 percent voting stake in CNET, it also has an 8 percent non-voting interest and recently enlisted Sandell Asset Management – which holds a 5 percent non-voting interest – as an ally. However, the investors may have run into a small problem with the company’s bylaws, which prevent any shareholders from nominating directors until they have held their stock for one year – a provision Jana calls “discriminatory”.

In the end, this is good news for shareholders as it could finally mean change in a company that has only seen problems for the last few years. The investor group’s nominations to the board have vast experience and would likely be able to bring some change. Combined, these factors make CNET a stock worth watching!

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Starbucks Corporation (NDAQ:SBUX) may be trading near its 52-week lows but many believe that it has nowhere to go but down. The coffee chain is facing increased competition from convenience-industry players like McDonalds, Dunkin Doughnuts, and regional coffee shops that threaten to slow the growth numbers to which investors have been accustomed.

McDonalds (NYSE:MCD) announced plans to take on Starbucks more directly today by installing premium coffee bars with baristas serving up cappuccinos, lattes, mochas, and frappes. Internal documents project that this program will add $1 billion to McDonald’s annual sales of $21.6 billion. The move marks another jump for a company that is already in its sixth year of a successful turnaround, while Starbucks has been struggling after years of strong growth numbers.

Starbucks has traditionally relied on the quality of its coffee to set it apart from fast food companies like McDonalds; however, the fast food chains recent switch to premium blends has many worried. It fact, the February issue of Consumer Reports even rated McDonald’s drip coffee as better-tasting than Starbucks! Since 80% of Starbucks customers do not drink in the store, quality may be the only thing keeping them coming back, which could present a problem.

Starbucks has taken actions of its own in order to combat the growing fast food threat. The coffee chain started serving lunch at many of its locations, offering customers a healthier alternative to fast food joints like McDonalds. The move has some worrying, however, that the chain may be eroding its good name by lowering itself to fast food standards. Starbucks also continues to boast the largest selection of specialty coffees, which should keep it ahead of McDonalds for serious drinkers.

Overall, Starbucks appears to be in danger of at least a significantly slowed growth with premium coffee blends expanding into fast food chains. Meanwhile, its own plans to introduce food has alienated some customers and has had very little impact on the company’s bottom line. It will be interesting to see how Starbucks responds to these threats as its shares continue to trend lower in the medium term.

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A large shareholder has demanded that 99 Cent Only Stores (NYSE:NDN) institute a plan to buy back its own shares, halt any expansion plans and close unprofitable divisions, according to a Schedule 13D filing with the Securities and Exchange Commission on Friday. Shareholders are hoping that the involvement of an activist hedge fund will help turn around the company’s stock, which has been underperforming as of recent times.

Akre Capital Management, which disclosed a 13.4% stake in the discount retailer, sent a letter to the company’s board expressing frustration with its current state. Akre noted that operating profits have declined each year and the company is now nearing breakeven. Meanwhile, management has also made several “misguided” decisions like staying in Texas, accelerating store growth and retaining excess cash. Combined, these decisions have resulted in a poorly performing stock.

“We believe that management is charged with two primary responsibilities: 1)restoring the company to a healthy level of profitability, and 2) making prudent capital investment decisions with the company’s existing asset base, operating cash flow, and balance sheet reserves,” said Akre in the letter. “So far, after nearly three years of tenure, management’s record is poor on both of these accounts.”

Akre them proposed a “conventional turnaround plan”, which prescribes halting all growth, exiting unprofitable products and divisions, and focusing full attention on restoring profitability to the remaining business. Balance sheet liquidity is deployed by repurchasing depressed stock, and growth resumes when it can be funded out of restored operating cash flow.

“This time-tested conventional plan seems ideal for the company, so management should have a compelling argument for why they have chosen an alternative and more speculative plan,” said Akre. “Despite repeated requests from investors, management is unable or unwilling to explain its reasoning in quantifiable terms.”

In the end, this is great news for shareholders as it means that they could finally see change in the company. If the activist hedge fund is successful in instituting this turnaround plan, we could see the share price increase significantly over the next few months as the company focuses in improving its margins while returning excess cash to shareholders through a buyback. Combined, these factors make NDN a stock worth watching!

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EchoStar Holding’s (NDAQ:SATS) spin-off from EchoStar Communications (NDAQ:DISH) made a spectacular debut this week as investors hope that the breakup will help Wall Street assign more accurate values to the newly divided companies, especially their non-satellite operations. The transaction should also allow for better incentivization for employees, greater operating efficiencies, and better access to financing. Shareholders are hoping that these factors will help boost the share price of the new companies.

The new spin-off SATS is poised to close out the week with a market cap of around $2.9 billion after jumping more than 70 percent on its debut. This would more than compensated for the 5.5 percent drop in DISH shares and create a combined market cap of around $18.6 billion, compared to $16.9 billion before the breakup. This illustrates that value has already been created for shareholders by the spin-off – in fact, substantial value of over 10 percent!

Rumors of a possible AT&T buyout of the Dish Network made its rounds this fall, but this new spin-off all but diminishes that possibility. However, the rumored buyout may have given investors an idea of pricing after some speculated AT&T would be willing to pay upwards of $56 per share for the combined company. This would have valued it at roughly where it is at now, suggesting that the spin-off was a success.

In the end, this is all great news for shareholders who have already realized a substantial gain in their investment through the spin-off. Meanwhile, spin-offs themselves have been shown to outperform the overall market during their first few years as a separate company, which is only good news. Combined, these factors make SATS a stock worth watching!

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Target Corporation (NYSE:TGT) is facing mounting pressure from investors to improve returns, but it could come at the expense of bond investors. William Ackman’s Pershing Square disclosed that it now holds a 10 percent stake in the discount retailer and hinted that it may take action to unlock value for shareholders. The likelihood that these actions could weigh on Target’s balance sheet spooked many credit investors who believe that this is the wrong course of action.

Many credit investors insist that Target is best off cutting costs and preserving its cash in the face of increased economic uncertainty and earnings misses. This pragmatic approach would preserve the company’s liquidity and integrity while slowly turning it around. William Ackman, however, is working against the clock with large option positions and will likely push for more aggressive financial policies in order to boost the share price in the short term.

Pershing Square has already pressured Target to sell off its credit card assets, but this sale is no longer likely given the financial firms that would be potential buyers are struggling themselves. Meanwhile, the company has already instituted a $10 billion share buyback program that caused Fitch to cut its credit rating. Many now believe that the activist may be interested in leveraging the balance sheet in order to obtain cash for an increased share buyback or special dividend.

Pershing Square’s investment in Target is already deep under water – down nearly 50% thanks to Target’s weak stock performance. Ackman assured his investors that the stock is significantly undervalued, saying the stock could go to $120 in three years if the company completes the stock buyback, sells the credit card unit and explores a potential real estate transaction. Combined, these factors make TGT a stock worth watching!

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Reddy Ice Holdings Inc. (NYSE:FRZ) may face problems with its proposed buyout after concerns surfaced that GSO Capital Partners may not be able to obtain the financial needed from Morgan Stanley to complete the $1.1 billion transaction. Perhaps equally troubling is the low $21 million breakup fee that would give GSO Capital little reason to try and salvage the deal if things went bad. Shareholders also remain divided on whether the company would best be sold or kept under current management.

The news only adds to other bad news that has already clouded the deal. The management of Reddy Ice was hit by shareholder protests against the price spearheaded by players like Noonday Asset Management and Shamrock Activist Value Fund. Meanwhile, GSO announced that it would need more time to secure the financing necessary to complete the transaction given the current market conditions. And problems only compounded as the company missed its July earnings targets as the CEO and COO announced that he was leaving the company.

Unfortunately, there is little left to support a $25 share price short of a merger actually being consummated. It will be interesting to see whether or not GSO and the company can complete the transaction, otherwise shareholders will be left with an underperforming company that can’t sell itself and lost its CEO and COO. There appears to be only problems left with this stock now…

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