Countrywide Financial (NYSE:CFC) shares spiked over 10 percent today after dropping substantially over the last few days on bankruptcy concerns. The bounce has been widely attributed to recently commentary that the mortgage lender may be too large to go bankrupt in the same way that Long-Term Capital Management was too large to go bankrupt – there’s too much at stake.

Countrywide recently announced that foreclosures and late payments on mortgages in December rose to their highest levels in five years, spelling out even more problems for the troubled mortgage lender. The huge number of bad loans alarmed many mortgage analysts, one of which said “the extent of the deterioration is a surprise”. Currently, Countrywide has a portfolio of around $1.5 trillion in loans that could prove to cause a crisis on Wall Street if the firm went belly-up.

So, could Countrywide go bankrupt? Well, Guy Cecala of Inside Mortgage Finance was quoted on PBS’ Nightly Business Report yesterday as saying that lawmakers would most likely lean towards propping up Countrywide and readying it for a merger rather than see it fall into bankruptcy. Indeed, any failure on the part of Countrywide would cause widespread problems throughout the mortgage industry. Loans would be significantly more difficult to obtain while liquidity in the marketplace would be impaired.

In the end, Countrywide is clearly in trouble right now. Foreclosures and rising defaults are dealing a double blow to the company as the firm is not only suffering losses on the loans themselves but also its mortgage securities are becoming increasingly difficult to sell due to their substantial drop in value. Whether or not the government will allow Countrywide to go bankrupt remains to be seen, but if they do, there will be huge problems in the United States housing market and economy.

Related Companies
Torchmark Corporation (TMK)
PHH Corporation (PHH)
FBL Financial Group (FFG)

The Goodyear Company (NYSE:GT) appears to be a compelling value play for at least two hedge funds that has quickly amassed a sizable stake in the tire and rubber company. TPG-Axon Capital quickly acquired shares to become the company’s second largest shareholder in about one quarter. Meanwhile, Eton Park Capital Management – the company’s largest shareholder – added 11.3 million shares to their stake. Investors may want to pay attention because both of these hedge funds are value funds!

TPG-Axon and Eton Park are both strong value funds and Goodyear fits perfectly into their portfolios. The company has strong financials and management along with good cash-flow generation. Meanwhile, the company’s cost reduction program may have been the catalyst needed to make it a compelling buy right now. Goodyear currently sits very near its 52-week low despite reporting strong third quarter earnings in October. The stock has fallen over 22% in the last three months based simply on economic fears and a decline in the U.S. Tire Index.

The purchase by TPG-Axon is a very positive sign for Goodyear shareholders. The company may be trading near its 52-week low, but the current valuation is likely unjustified and simply due to larger economic returns that are being blown out of proportion. The involvement of these two hedge funds could give investors the confidence they need to re-enter this stock and help it return to its true valuation. Combined, these factors make GT a stock worth watching closely over the next few months!

Related Companies
Dana Corporation (DCN)
Titan International (TWI)
Callaway Golf Company (ELY)

Logitech International (NDAQ:LOGI) shares jumped over seven percent in early trading amid speculation that Microsoft Corporation (NDAQ:MSFT) may be interested in taking over the company. The rumors stemmed from the fact that the software giant boosted its stake in the hardware company by 12 percent in recent weeks. Sources close to the situation say that a takeover bid could approach 48 Franks – or a 38 percent premium to yesterday’s closing price.

Many analysts have been predicting a move by software giants to diversify into hardware through mergers and acquisitions. An acquisition of Logitech by Microsoft would turn the software giant into not only one of the largest software companies in the world, but also the largest peripherals manufacturer in the world. A company that is already ubiquitous with personal computing software also has a lot of leverage that it could use to push hardware products as it has already done with its own lines.

Logitech’s co-founder and largest shareholder, Daniel Borel, declined to comment on Microsoft rumors but said he had no reason to sell his stake. He only owns some 6 percent, however, so he will neither enable nor prevent a sale of the company. Interestingly, he also hinted that Logitech may be a great acquisition by saying it was a company in great shape, growing nicely, with a strong vision for the future.

In the end, this is all great news for Logitech shareholders. A boost in the company’s market capitalization may now help it make some of its own acquisitions “for free” if it is able to hold onto the gains. Otherwise, an acquisition by Microsoft at a 38 percent premium would also be welcomed by shareholders who have been sitting on modest gains in the past. Combined, these factors make LOGI a stock worth watching!

Related Companies
Plantronics Inc. (PLT)
Universal Electronics (UEIC)
Immersion Corporation (IMMR)

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!

Related Companies
TD Ameritrade (AMTD)
TradeStation Inc. (TRAD)
NetBank Inc. (NTBKQ)

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…

Related Companies
Centex Corporation (CTX)
DR Horton Inc. (DHI)
Pulte Homes Inc. (PHM)

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!

Related Companies
Perot Systems Corporation (PER)
Affiliated Computer Services (ACS)
SRA International Inc. (SRX)

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!

Related Companies
Peet’s Coffee & Tea Inc. (PEET)
Caribou Coffee Company (CBOU)
Krispy Kreme Doughnuts (KKD)

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!

Related Companies
Yahoo Inc. (YHOO)
Google Inc. (GOOG)
Time Warner Inc. (TWX)

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.

Related Companies
Peet’s Coffee & Tea Inc. (PEET)
Caribou Coffee Company (CBOU)
Krispy Kreme Doughnuts (KKD)

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!

Related Companies
Dollar Tree Stores Inc. (DLTR)
Family Dollar Stores Inc. (FDO)
Big Lots Inc. (BIG)