J.C. Penney (NYSE: JCP) has caught the eye of billionaire activist Carl Icahn who reporedly bought up a substantial stake in the company. The Deal Journal reported that the retailer may be among Icahn’s top five holdings, meaning his stake could run into the hundreds of millions of dollars. The move follows that of other activists, like William Ackman, into retailers that have been beaten down by a slowdown in consumer spending. Shareholders seem to be mixed on the news as shares started the day higher only to drop more than five percent.

J.C. Penney shares are up over 25% off of their highs along with many other retailers that have been helped by rate cuts and a tax rebate that promises to at least temporarily boost spending. However, many still see J.C. Penney as a cheap stock at these levels. The stock has moved down 44% during the past year after same-store sales fell 7.5%, which dropped its price-to-earnings multiple to just 9.5x last-twelve-months earnings. This compares to an industry average of 14.7x, making J.C. Penney one of the cheapest in the industry.

Activist and value investors alike have been flocking to the retail sector recently amid cheap valuations. Icahn made his interest clear last month when he said that recent declines in industry shares had made them “very cheap”. Meanwhile, other activists like William Ackman have accumulated significant economic and reported stakes in Target Corporation (NYSE: TGT) and Sears Holding Corporation (NYSE: SHLD). Indeed, the multiples of these retailers continue to trail the overall market, while their real estate and credit card assets continue to draw interest.

In the end, it will be interesting to see how this story plays out. Retailers are definitely cheap, but many believe that it may be justified given the substantial problems facing the industry. Activists like Ackman have very specific reasoning behind their investments, but Icahn may face problems if he is simply purchasing because they are undervalued. The first lesson in high-return investing is to find a catalyst - otherwise, stocks can stay cheap for awhile. What this catalyst is remains to be seen, but this is definitely a stock worth watching!

Related Companies
Kohl’s Corporation (KSS)
Saks International (SKS)
Sears Holdings Corp. (SHLD)

The Greenbrier Companies (NYSE: GBX) shares soared more than 20 percent today after Carl Icahn disclosed a substantial stake in the company and discussed the possibility of a combination with American Railcar (NDAQ: ARII). The news comes as shares of the railroad company sat near 52-week lows, beaten down by poor earnings and growth. Many shareholders are hoping that the billionaire activist will be able to unlock value in both companies through strategic alternatives.

Carl Icahn currently holds a 53.7% stake in American Railcar and aggressively purchased shares of Greenbrier through its subsidiary Longtrain. Longtrain purchased the full 1,530,000 share position between January 8th and January 25th and prices ranging from $17.60 to $19.54 per share. Many are speculating that the activist is moving quickly to acquire the company at bargain-basement prices after amassing a 9.45% stake in just a month. It will be interesting to see how ready shareholders will be to sell at these levels.

Greenbrier confirmed that it had received Carl Icahn’s Schedule 13D filing and is committed to acting in the best interests of Greenbrier shareholders and other constituencies. However, the board offered no additional comments at this time as they are reviewing the information carefully. It is worth noting that Carl Icahn is not opposed to taking hostile action when necessary to unlock value in his investments, so the board will likely pay attention to anything that he says in future communications.

In the end, the railroad industry has been recovering but still suffers from many fundamental issues. Carl Icahn’s investment in American Railcar alongside investments by many other value investors suggest that the industry may be undervalued. As a result, Carl Icahn’s (assumed) planned purchase of Greenbrier couldn’t come at a better time as shares sit near 52-week lows. It will be interesting to see how all parties respond when something becomes of this situation. Combined, these factors make Greenbrier a stock worth watching!

Related Companies
Wabtec Corporation (WAB)
American Railcar (ARII)
Portec Rail Products (PRPX)

RealNetworks, Inc. (NDAQ: RNWK) share rose sharply today after the digital media company announced a new partnership with Yahoo Inc. (NDAQ: YHOO) under which Yahoo! Music will now be handled by Rhapsody America. The move will increase Rhapsody’s user base by a substantial number - a move that RealNetworks hopes will boost its own service and drive revenues. Shareholders shared the optimism today as they hope that the move may be just was RealNetworks needs to boost its share price.

RealNetworks currently has around 2.7 million subscribers, but this new partnership should bring that number up to around 23 million subscribers. This substantial increase will definitely increase Rhapsody’s exposure, but the margins may end up suffering (as a large cut likely goes to Yahoo). Interestingly, Yahoo! Music was once considered to be the Rhapsody killer, but it now appears that Rhapsody is the one doing the killing. Yahoo! Music subscribers will be switched over to Rhapsody’s $12.99/month plan when their existing contracts expire.

The new partnership is welcome news for shareholders who have seen the value of their stock slip in recent times. Shares are down around 42% since their highs in the beginning of 2007 amid poor earnings and questionable acquisitions. Many are bullish on this partnership that could prove to give shares some upside. However, there is one big problem in the way - Microsoft. It will be interesting to see if this partnership stays in tact post-acquisition given RealNetwork’s poor relationship with Microsoft.

In the end, this deal is great news for both Yahoo and RealNetworks. Yahoo benefits by being able to shed a relatively non-profitable division while still being able to monetize it while RealNetworks has substantially increased the size and value of its network of users. There is some risk that this partnership may fall through with the Microsoft acquisition, but the situation is still one that is definitely worth watching!

Related Companies
Apple Inc. (AAPL)
Microsoft Corporation (MSFT)
Google Inc. (GOOG)