Tiffany & Co. (NYSE: TIF) shares may be well off or their 52-week highs but that isn’t discouraging one large activist investor from building up a sizable stake and banking on a turnaround. Shares in the jeweler rose almost 3 percent today after Nelson Peltz’s Trian Fund Management raised its stake in Tiffany from 5.54% to 7.9%. Shareholders are hoping that the activist investor can take action to help the company turn itself around and restore confidence.

Nelson Peltz is well known for his involvement in companies like Wendy’s International (NYSE: WEN) and H.J. Heinz (NYSE: HNZ), which rose 38% and 22% respectively since his involvement. In both instances, he took actions designed to unlock value by shedding certain business units and improving operating efficiency. Many are hoping that the activist can do the same for Tiffany’s, which has been struggling in a tough retail environment with sinking margins.

Tiffany’s recently announced overseas sales that were more robust than domestic sales with an 18% increase in net income in Europe and a 30% increase in Asian-Pacific countries. However, these numbers failed to impress the market who were looking for something more – shares plunged from around $40 per share to below $34 per share earlier this week.

In the end, Tiffany’s is a stock that is clearly in need of some help. Nelson Peltz is well known for taking action to unlock hidden value within companies and many shareholders are hoping that he will do the same for this company and help shareholders turn around their investments in the company. Combined, these factors make TIF a stock worth watching!

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ISIS Pharmaceuticals (NDAQ: ISIS) has the attention of analysts but is having trouble attracting a good valuation from investors. Jefferies Research reiterated their $30 price target for the pharmaceutical company, saying a number of near-term catalysts should drive share appreciation. Meanwhile, the company’s chief executive came out early this week saying that the street was grossly undervaluing the Genzyme Corporation (NDAQ: GENZ) deal they recently inked on Monday. So, do shareholders have it wrong?

There are several catalysts that could set ISIS shares soaring. Recently, the company has been exploring strategic alternatives for its Ibis Biosciences division and some believe that a partnership with a substantial upfront payment, spin-off, or sale could materialize sooner than the street expects. This could prove to be a windfall for the company’s shareholders if it went through at attractive pricing.

ISIS is also expecting to commence its Mipomersen P3 heterozygous FH (HeFH) trials shortly. Analysts believe that one of the key points with the FDA centers around finalizing the most appropriate definition of a HeFH patient. Meanwhile, physicians have reported expressed a large degree of comfort with all the mipomersen data presented so far in the process. Consequently, there are no major road-blocks seen the P3 trails in the broader FH population. Obviously, news of this could send shares much higher.

Finally, ISIS’ recent deal with Genzyme only managed to return about 16% now since the announcement despite an early pop in the share price. The deal to license ISIS’ experimental cholesterol fighter could result in more than $1.5 billion in milestone payments and a 50% share of profits from the medicine. Considering that ISIS’ market capitalization stands right around $1.5 billion alone, this could definitely prove to be a windfall if everything goes as planned.

In the end, there are many things that could jump ISIS’ share price over the short and medium terms. However, as with most pharmaceutical companies, there is no guarantee that anything happens. Often times, you just have to play the odds. If nothing else, this is an interesting stock that is definitely worth watching over the next few weeks and months!

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Retailers have taken a beating recently with weak consumer spending amid tough competition. Many names like Target Corporation (NYSE: TGT) and Sears Holding Corporation (NYSE: SHLD) are generating substantial losses for otherwise great investors. So, are these simply bad apples in their portfolios or should we expect to see a turnaround in the retail sector over the next few years.

Target has quickly become one of the most compelling stories on Wall Street today. The retailer saw its stock drop nearly half from it’s 52-week high of $70 per share. Billionaire William Ackman felt this drop in his own portfolio of leveraged Target stock. The activist investor, known for his 20%+ annual returns, took a huge hit on the stock (but was still able to return a rumored 23% last year). However, the activist hasn’t been selling. In fact, he recently increased his economic ownership to over 10% and is considering a new fund exclusively to invest in Target.

Bill Ackman believes that Target stock is worth $120 a share over the next three years. The value – in his eyes – is hidden within the company’s real estate and consumer credit divisions – both hindered by the current crisis. He argued that the company should complete a previously announced $10 billion share buyback, sell its $8 billion in credit card loans, and extract cash through its sizable real estate holdings. In fact, the activist estimates Target’s real estate worth as $42 billion – the same as its market cap!

Eddie Lampert is another well-known activist investor that took a large position in Sears before the consumer credit and subprime crisis hit the street. Like Ackman, Lampert saw his Sears investment nearly cut in half and there is no indication that the pain is over. However, this situation is a little different in that Lampert is actually CEO of Sears. The activist took over after pushing for the merger with Kmart that pushed shares above the $100 level for the first time.

Initially, Lampert planned to milk the retailers’ cash flows in order to fund other investments – similar to the his idol did with Berkshire Hathaway in the early days. However, plans are now changing as the retailer has failed to produce rising same-store sales for several months. Now, the plan may be to leverage its portfolio of valuable brands and real estate and break up the company to unlock value. Many argue that a spin-off of Kenmore or Craftsman could generate extra cash that could be used to fund more profitable acquisitions. Meanwhile, real estate assets could also be leveraged but this may not be the best time to do it.

In the end, these are two of Wall Street’s best investors that have found themselves stuck in losing stocks. The lesson is that intrinsic value is not always equal to market value; the market can undervalue a company long enough for its intrinsic value to fall. Declining consumer spending, consumer credit and real estate prices may put a wrench in these strategies. However, both are interesting stocks that are worth watching in case the activists are able to successfully effect change!

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Life Partners Holdings, Inc. (NDAQ: LPHI) may not be at the top of the list of some socially-conscious investors but it is definitely at the top for investors looking for a safe, high-growth investment. Life Partners is the premier player in what is known as the life settlement industry – an industry that buys life insurance policies for a fraction of face value and collects when the policy owner expires. It turns out that this is an enormously profitable business with net income increasing 515% and total business volume increasing 257% during the company’s most recent financial results.

Many companies in the financial sector have been troubled by their exposure to various types of debt. The rising cost of debt combined with the problems associated with securitized debt has been the trademark of this most recent downfall. However, life settlements offer an alternative investment that involves no debt and guaranteed income – after all, everyone dies at some point. Life Partners bundles and securitizes these life insurance policies and sells the package to institutions that are – now more than ever – looking for a safe investment shielded from the debt and credit markets.

So, why are the company’s shares so beaten down? Well, first of all some investors are uncomfortable with the fact that the majority of the company’s clients come from three referring brokers. Secondly, there is some pending litigation in Virginia that is in appeals court that could cause problems. Thirdly, many analysts and investors are accustomed to strong earnings announcements, so when things slow down, it could send the stock falling.

Trading with a P/E of just 14.8x earnings, many investors believe that this stock may be close to its bottom (since most of the above has been priced into the stock). Meanwhile, the company has instituted a million share buyback program under the belief that the company is substantially undervalued. So, what does this all mean in the end? Well, there are a lot of questions remaining, but this is definitely company worth watching going forward!

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IncrediMail Ltd. (NDAQ: MAIL) shares are trading up today but still off on the month after Google (NDAQ: GOOG) decided to boot the company from its AdSense program. Last Friday, the e-mail provider said it received notice from web search company stating that it decided to stop an advertising partnership between the two firms, which sent shares down more than 45 percent to a new 52-week low. Since then, shares have recovered somewhat but many are still unsure of what will happen now.

IncrediMail, which develops software to customize e-mails, relies on Google for over a substantial portion of its annual revenues. The company is now trying to clarify matters with the search giant and exploring alternative relationships with Google and other vendors. Interestingly, programs like Yahoo! Publisher and similar programs from Microsoft’s MSN can offer similar rates and would likely be willing to take the place of Google as an advertiser on their website. This means that the drop we have seen may be overdone since this issue would only be temporary.

The only real concern remaining is whether the drop was the result of fraudulent activity, which would mean some of the company’s revenues came as a result of illegitimate behavior. However, the company’s co-founder spoke with a member of the media not long ago confirming that this is not a fraud-related issue and that in a few days it will all be sorted out – with or without Google. This has many people purchasing the stock ahead of an anticipated announcement that all is again well.

In the end, this is bad news for existing shareholders but a great opportunity for new investors. There are many programs like Google AdSense that pay the same or more money per click or impression, so this problem should be able to be sorted out in a timely manner. This means that the 40%+ drop last Friday was majorly overdone and this could be a great buying opportunity. Combined, these factors make MAIL a stock worth watching!

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BioSante Pharmaceuticals, Inc. (NDAQ: BPAX) insiders appeal to be bullish on the stock as it approaches its 52-week low. The biopharmaceutical company, which is developing a female sexual dysfunction drug, saw executives and directors purchase some 151,000 shares in just the last month between $3.59 and $3.98. Meanwhile, not a single insider has sold stock – even when it was trading at a 52-week high last May. So, should individual investors consider buying into this stock?

BioSante currently has a market cap of $110 million with a strong balance sheet, $30 million in cash, no debt, and a promising drug in the pipeline – LibiGel. The new drug is a low-dose testosterone in a gel formulation designed to increase sexual desire in women. A recent study conducted by the Journal of the American Medical Association found that 43% of American women (40 million or so) are estimated to experience some degree of impaired sexual function. The company believes that LibiGel will be the first FDA-approved product for FSD, with an estimated 1.4 million off-label prescriptions written during 3006. The minimum estimated US market for LibiGel is $2 to $4 billion with blockbuster sales potential.

What does the competition look like? Well, Procter & Gamble (NYSE: PG) developed their own twice-weekly testosterone skin patch in 2004, but it was rejected by the FDA and only approved for use in Europe. Since then, they have failed to launch any additional safety studies, so it appears that they will not attempt approval in the United States. Meanwhile, the FDA recently sent warning letters to compounding pharmacies that are pushing “bio-identical hormone replacement therapy” products designed to do the same thing as the testosterone gel. Moreover, BioSante’s FDA approval enables patients to get insurance to cover the drug in many cases – which means more sales.

So, where does the drug stand now? LibiGel needs just 12 months of safety data before a new drug application (NDA) will be considered by the FDA. The Phase 3 trial for the drug launched last week and is designed to demonstrate the product’s safety in low doses. The first efficacy trial is now underway and the company plans to initiate a second in early 2008. Clearly, insiders are also bullish on the prospects of this drug as they are buying up a record amount of stock. Combined, these factors make BPAX a stock worth watching!

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Kellwood Company (NYSE: KWD) shares spiked today after a private investment firm is taking its $542.3 million cash offer for the company straight to shareholders. Sun Capital Securities Group offered $21 per share for the apparel maker today, which represents a premium over the stocks $16.51 closing price on Monday. Clearly, many shareholders are bullish on the news as shares rose over 10 percent today.

Sun Capital failed in its two previous attempts to take a buyout bid to the board of directors. “We are disappointed that Kellwood’s board is unwilling to enter into a constructive dialog with us regarding what we believe is a very compelling transaction,” said Jason Bernzweig of Sun Capital.

Sun Capital, which already owns 9.9% of the Kellwood, values its direct tender offer at $762 million but noted that it hinged on Kellwood ending its $60 million debt tender offer which destroys the company’s value. Otherwise, the firm will drop its buyout price to $19.50 per share.

Sun Capital also announced that it would be nominating its own slate of directors for election to Kellwood’s board at the 2008 annual meeting if the company fails to reach an agreement soon. Indeed, this may be their only option after two failed traditional attempts and a failed tender offer placed directly to shareholders.

So, will they be successful this time by going straight to the shareholders? Well, clearly shareholders are bullish on the idea of a direct tender offer, so it will be interesting to see what kind of response rates they are able to obtain. And even if they do not succeed, they may have built up a substantial enough stake to make a real run at the board of directors. Combined, these factors make KWD a stock worth watching!

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Transmeta Corporation (NDAQ: TMTA), well known for its patent battle with Intel, may face some scrutiny by its largest shareholder. Riley Investment Management demanded that the company provide records for an investigation of potential mismanagement by the company’s board of directors. Many analysts and shareholders are not surprised by the move, which comes after a litany of other jabs that the activist investor has taken against the company – all justified.

“The purpose of this demand to inspect the Company’s Books and Records is to investigate potential wrongdoing, mismanagement, waste of corporate assets or breaches of fiduciary duties by members of the Company’s Board of Directors and to assess the ability of the Company’s board to impartially consider a demand for action (including, without limitation, a request for permission to file a derivative lawsuit on the Company’s behalf) related to the items described in this demand,” said Riley in a statement.

Riley previously criticized Transmeta for awarding “staggering options grants” to certain executive officers, which would have diluted shareholders by more than five percent. The activist investor also said the company failed to adequately disclose the formula behind a hefty bonus payment awarded to General Counsel John Horsley, related to the company’s $250 million patent settlement with Intel.

Now, Riley has requested that the company provide details on executive compensation along with any business and/or social relationships between the board members and executive officers. Ever since Transmeta has obtained the $250 million Intel settlement, it appears as if things have gotten out of hand and Riley is here to clean up the mess! This is great news for TMTA shareholders who could start actually seeing the proceeds from the $250 million if this activity stops.

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Tellabs, Inc. (NDAQ: TLAB) has seen a lot of action recently ahead of its earnings announcement this week and continued speculation that it could be a buyout target. The telecommunications and technology company recently hit a 52-week low of $5.09, which is well off of its highs around $13 per share. However, unusual call option volume triggered a rebound in the stock price that has many investors now bullish on this troubled stock.

Last week, Tellabs saw nearly 10,000 call options traded, compared to only 1,753 puts and average daily volume of 1,350 contracts. There was a similar story on Friday with 15,200 call options traded and the trend has only continued into this week. This activity caused a noticeable rebound in the stock price that now sits closer to $6 per share – nearly 20% off of its 52-week lows.

Some of this movement is attributed to a new rumor that Nokia may be interested in acquiring the company. In the past, valuations for such buyout of TLAB have been pegged at $9 or $10 per share. There was also talk of a “rich offer” made by Nokia in the past, although they would not confirm this fact to the public. However, the Wall Street Journal’s commentary confirms that the talk was indeed out there and making rounds. Clearly, any such offer would be a windfall for shareholders at these prices.

Other analysts attribute the rise to key indicators that earnings may be better than expected. Verizon recently reported that slowing economic growth was not curbing its sales and that it would spend $23 billion over seven years to build out a fiber-based network that offers TV and faster Internet speeds for home users. This is great news for Tellabs, which is a leading provider of fiber-optical products for Verizon. Tellabs has a product that benefits directly from these trends.

In the end, there is clearly reason to be excited with Tellabs. The idea of a buyout is still just that – an idea. However, the company appears to be well positioned to take advantage of growing trends in the fiber-optics market. Combined, these factors make TLAB a stock worth watching!

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Many activist investors, like Carl Icahn and Bill Ackman, are well known for taking an activist stance in their investments and producing strong returns. However, the best investors are not always perfect and following them blindly could be a bad idea. Target Corporation (NYSE: TGT) and Sears Holdings Corporation (NDAQ: SHLD) are two recent examples of how activist investors can make big bets in the wrong direction.

William Ackman’s Pershing Square Capital Management, well-known for its stand-off with McDonalds and 22% annualized returns, has built up nearly a 10% stake in Target over the past year. The famous investor is now over 50% underwater on his investment that he insists is worth $120 a share in 36 months. The problem is that much of the retailer’s value is held up in real estate, which has declined substantially in value. Moreover, consumer spending and credit have led to a much tougher environment for retailers. So, where is the catalyst for a jump in share price?

Eddie Lampert, well-known for his involvement in the Kmart bankruptcy and high-profile clients, is also deep underwater on his retailer investment – Sears Holding Corporation. The retailer recently reported weak holiday sales results, lower gross margins and forecast a profit for the fiscal year below Wall Street estimates. Many have speculated that the activist planned to sell off the company’s real estate holdings in order to unlock value, but this is no longer a possibility thanks to the struggling commercial real estate market.

So, what are they doing now? Well, Ackman announced that he is starting a new fund solely to invest in Target with the expectation that shares will reach $120 a piece in 36 months once the blood drains off the streets. Meanwhile, there is no word on what Lampert plans to do with his position and he has not announced any sales. Many are expecting him to continue holding his stake until the market turns and he is able to unload the credit card operations to unlock at least some value.

In the end, we can trace both of these failures to a drastic change in the markets that caused problems with the underlying activist strategy. Since the two already built up large stakes, it was not possible to exit the stock quickly and they were left holding the bag. It is important for investors to consider economic forecasts before investing in any company – even those held by famous activists!

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