Alliance Data Systems Corporation (NYSE: ADS) shares resumed trading today after the company announced that it had voluntarily dropped its lawsuit against The Blackstone Group (NYSE: BX). The two companies have been involved in a heated lawsuit over a botched acquisition that came amid turmoil in the credit and debt markets. Many shareholders are now speculating that the two have reached an agreement that could help propel shares substantially higher. So, should you look at picking up some Alliance Data shares ahead of any announcement?

Alliance Data, which provides credit card services for retailers, sued Blackstone in an effort to force them to carry out the terms of a May 2007 proposal to buy the company for $81.75 per share ($6.4 billion). The deal fell apart as funding for private equity became more expensie amid turmoil in the debt markets. Blackstone argued that the operational and financial burdens on the company could not be reasonably assumed given these new developments. However, the private equity firm did say that it was committed to working toward the closing of its acquisition of the company.

Alliance Data Systems is currently trading at $55.06, which is substantially lower than the initial $81.75 per share buyout price. The fact that Alliance Data dropped the lawsuit suggests that they were able to work out some kind of an agreement with Blackstone that could resolve the situation. And finally, given the fact that the private equity firm was reportedly looking toward closing the acquisition, that seems to be the most likely conclusion. However, it is highly unlikely that the acquisition will close for the original $81.75 given the deteriorations in the credit market and debt markets.

So, what is a fair valuation? Well, Alliance Systems recently posted a 14% drop in earnings after losses from a business unit sale and from its failed buyout. However, revenues were up about 15% to $602.7 million when estimates were looking from $601 million. Meanwhile, the company maintained that it could generate double-digit organic growth in both operating and adjust EBITDA. It was upgraded shorly thereafter by several analysts and has since risen from $39 per share to its current levels. Many now peg its value closer to $65 to $70 in the event of a buyout - still a healthy premium to the current price.

In the end, Alliance Systems appears to be heading towards a resumed buyout but it still remains very questionable. The valuation in the buyout could be dropped to $65 to $70 per share and investors must multiply that by the probability of a buyout in order to determine how much they’d be willing to pay now. Regardless, this is definitely a stock that it worth watching!

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Tiffany & Co. (NYSE: TIF) shares rose over five percent in today’s trading after it boosted its fiscal 2008 earnings forecast above its two previous forecasts and analyst estimates. The retailer now expects a rise of at least 10% in its worldwide sales based on high-single-digit percentage increases in U.S. retail sales. This took Wall Street by surprise given the company’s recent cut in its full-year earnings forecast after a drop in U.S. sales hit overall same-store sales growth amid a slowdown in consumer spending. So, is Tiffany & Co. a stock that you should consider for your portfolio?

Chairman and chief executive Michael Kowalski noted that sales improved modestly in January month-over-month thanks in some part to continued strength in Europe and the Asia-Pacific region outside of Japan. Consequently, the company is looking to see modest growth in the United States while planning for continued healthy international sales growth throughout the year. Some are insisting, however, that consumer spending in high-end discretionary purchases like Tiffany & Co.’s products may be the next to fall after the apparel industry’s poor results yesterday.

So, will the economy eventually weigh on this company? Well, a recent report by the Federal Reserve showed an abrupt slowdown in consumer credit card borrowing while delinquencies on credit cards continue to rise. Furthermore, recent reports by MasterCard have indicated that many consumers are switching their spending from discretionary items like appliances and jewelry to staples like gas and groceries. These are all clearly bad trends for Tiffany & Co., which relies on such discretionary spending on the high-end in order to jump their sales. This has already affected countless retailers and even some other luxury players, which suggests that Tiffany & Co. is not immune to problems.

In the end, it will be interesting to see if Tiffany & Co. can avoid the problems facing its neighbors and perhaps even stave off any marginal U.S. results in the future with strong international demand. Regardless, this is definitely an interesting company that is worth watching since it could end up outperforming amid larger economic weakness.

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Walgreen Company (NYSE: WAG) is quickly becoming a fundamentalist favorite with its attractive valuation and strong growth amid the economic slowdown. Shares in the drugstore chain had been shot down from their highs of $49.10 to around $32.50 before rebounding to the $35.43 level today. Many analysts believe that the company may be able to sidestep most of the economic turmoil facing other retailers, but the fact that it resides in the category means it will be available on the cheap. So, should you look at adding Walgreens to your portfolio?

Walgreens is currently trading at just 17.5x earnings with a PEG of around 1.17, which is among the lowest valuations in its industry. Meanwhile, the company beats its competition with better gross and operating margins than the industry by around 2-3 percent on both sides. Notably, the company has also had an earnings surprise for three out of the last four quarters, which is what really matters for shareholders. And finally, the drugstore’s balance sheet is also well capitalized with low debt and extra cash.

Walgreens recently reported strong sales in January, which relieved many investors worried about decreased consumer spending. The company noted that same-store sales (the key measure in retail) were up 3.8% while total sales increased 9.6% for the month. Walgreens has recently been trying to increase its sales by adding more high value products and services with its DHL partnership and ink cartridge refilling initiatives. Investors can expect more strong growth from the company going forward.

Walgreens also announced that it opened 39 new stores in January, including two relocations and four closed stores. Management has stated in the past that they are committed to an 8% annual store growth rate in 2008 with 550 new stores opening. More, they expect to open around 600 new stores in 2009 and continue until reaching their U.S. plateau of 13,000 stores. Meanwhile, the company has been expanding abroad after they announced a purchase of 20 Puerto Rico stores. These increases all point to a faster growth story.

In the end, Walgreens is a quickly growing company that appears to be trading at a relatively cheap level thanks to a slowdown in the retail sector. The specialty pharmaceutical retailer segment continues to grow at a solid rate and investors should consider picking up shares while they are cheap. Combined, these factors make WAG a stock worth watching!

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Consolidated-Tomoka Land Company (AMEX: CTO) board members may soon be forced to fight for their jobs after Wintergreen Advisors LLC disclosed a 9.87% stake (and 25%+ economic stake) in the company and nominated three of its own candidates to the board of directors. Shares in the company have slid from their 52-week high of $80.50 to $42.50 before recovering marginally to their current level of $51.29 amid a decline in the U.S. real estate market. Shareholders are hoping that Wintergreen will be able to step in and help turn around the troubled company - and new blood could be just the trick.

Consolidated Tomoka began as a timber company and was perhaps Florida’s largest landowner with over 2 Million acres in the early 20th century. After dropping initially do to increased liquidity, CTO began a steady march upward. Today, CTO continues to own nearly thousands of acres in Florida, including 10,600 in the City of Daytona Beach. In addition, the company owns the equivalent of 284,000 acres of oil, gas, and mineral subsurface interests with 2 producing oil wells on the company’s interests. Management undertook a new strategy in 2000 designed to use the tax-deferred proceeds of land sales to purchase commercial property with long term triple-net leases dispersed over a larger area. Unfortunately, the market collapsed soon after it started paying off…

Investors are now stuck in a limbo after the director of the board declared his retirement and the company failed to offer any meaningful updates on its strategy or direction. Wintergreen is seeking to change that with a set of new directors and a series of proposals. The activist hedge fund urged the board to increase the number of directors in order to ensure that changes are put in place and amend their bylaws to eliminate the need for the board to make proposed changes only with a shareholder vote.

Wintergreen recommended the following actions in their letter to the board:

1. Align management compensation to the success of the company in achieving its stated goals rather than having the bonus and compensation structure revolve around selling properties out of inventory.
2. Review the growth and level of company operating costs in order to explore areas of reduction.
3. Hire outside advisors to develop a strategy to better address the long-term goals of the company.
4. Hire forensic accountants to review past years’ activities to verify that all proper processes and procedures are in place to avoid conflicts of interests between directors, officers and employees.
5. Improve public disclosure to clarify what actions have been taken and are being taken to improve long-term shareholder value.
6. Review company activities to determine whether or not the appropriate authority and responsibility resides in the company officers and the board of directors.

In the end, these proposals would help Consolidated-Tomoka identify the best strategy going forward and make sure that management and shareholder interests are fully aligned. It will be interesting to see if shareholders will support the new proposed directors and how the changes will affect the company going forward. Combined, these factors make CTO a stock worth watching!

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Fortune Brands, Inc. (NYSE: FO) has long been hailed as one of the best fundamental plays in the market by value investors, but when can investors expect a return to former glory? The diversified conglomerate holds premium brands that are widely considered monopolies in their respective markets, but investors continue to value the company at a meager 12x forward earnings. The company is trading down 20% on the year and continues to decline amid economic weakness and a decline in consumer spending. So, is this stock on sale right now?

Fortune Brands controls many of the most recognizable brand names in the industry. Its spirits and wine division controls Jim Bean, Makers Mark, Knob Creek, Sauza, Courvoisier, Dekuyper, Clos du Bois, and Canadian Club. Its hardware division owns Moen, Aristokraft, Therma Tru, Master Lock, Omega, Waterloo, Kitchen Craft, and Diamond. Its golf division owns Titleist, Foot Joy, Pinnacle, Cobra, and Scotty Cameroom. Combined, these brand names give this company a sustainable competitive advantage over others operating in the area over the long run.

Many investors are shying away from the company because 44% of its gross revenues come from hardware and home sales - not the best market in the world right now. Others are concerned with the company’s relatively high debt load, which management has said it would begin paying down. Fortunately (no pun intended), the company’s PEG ratio stands at a reasonable 1.44 given the slowdown while its debt-to-equity ratio stands at a manageable 0.769. It is likely that earnings will slow, but much of the slowdown may have already been built into the price. Furthermore, the company is trading at a substantial nearly 50% discount to its enterprise value.

Fortune Brands has also taken action to buy up cheap brands at today’s depressed levels. Recently, the company announced that it plans to purchase Absolut to supplement its existing wine and spirits division. The most is expected to accredit earnings within a reasonable amount of time and should help boost shareholder value. It will be interesting to see if the company makes any further acquisitions; however, it is important to keep an eye on their level of debt in the meantime.

In the end, Fortune Brands is a strong company that is caught in a decline thanks to the tough housing market and a decline in consumer spending. A lot of the weakness in its earnings has already been priced into the stock as it trades with a forward PE of just 12x and a PEG of just 1.44. Management remains committed to paying down the debt on the stock while eyeing acquisitions in today’s cheap markets. Combined, these are smart moves that could end up generating substantial shareholder value over the next few years!

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SIMTEK Corporation (NDAQ: SMTK) shares continued their rise today after Cypress Semiconductor (NYSE: CY) announced that it would explore a potential acquisition of the company. Cypress offered few details other than noting that discussions could result in a transaction such as a merger, acquisition or stock, or purchase of a division or business. SIMTEK shares jumped over 60% on the news, despite the fact that there has been no set offer or assurances that a deal will even be made in this difficult credit environment. So, what should you do?

SIMTEK shares are trading well off their 52-week highs of around $6.71 after the company cut its revenue and profit forecasts in late October. Shares are now trading at a five year low and Cypress already owns a 6% stake in the company with warrants that could boost its interest to 19.3% if exercised. Cypress also stands to save money on royalty payments to SIMTEK related to their co-developed 4-megabit chip scheduled for delivery next quarter. Combined, these factors could make for a relatively cheap acquisition in terms of cash outlay at this point.

SIMTEK chief executive Harold Blomquist said his company had no warning that Cypress was interested in an acquisition but was not surprised given their very healthy working relationship. Many analysts are not all that surprised either given the fact that the two companies are joint development partners and suggest that the company could sell for between $3.15 and $3.50 per share. Given the health of the credit market and the fact that this is a strategic buyer, it is unlikely that any other bidders will emerge.

In the end, this is great news for SIMTEK shareholders who saw their shares hit new five year lows just days ago. Cypress’ acquisition would make a lot of sense from a business standpoint and would come at a very cheap price while SIMTEK shareholders would be rewarded with a fair value for their stock. Combined, these factors make SMTK worth watching!

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IAC/InterActiveCorp. (NDAQ: IACI) shares plunged today after the company announced that it had lost $369.9 million during the fourth quarter due to higher taxes, difficulty in its mortgage referral unit and costs associated with the proposed spin offs of its five business segments. The news has disappointed many shareholders, but underscored the need for the planned spin offs to take place in order to unlock value for shareholders and increase the performance of the company’s individual units.

“There is good news and bad news this quarter — the mix of which is another reason why our previously announced plans to reorganize IAC into five independent public companies makes more and more sense,” said CEO Barry Diller. However, some are beginning to question his credibility after losses continue to pile up and shareholder sentiment is quickly turning against him. One analyst went so far as to say that “there’s probably no momentum to maintain Barry Diller in his current role”.

IAC proposed spinning off four of its divisions to create five independent companies back in November of last year. The spin offs would include its HSN home shopping network, Ticketmaster ticketing service, Interval time-share business, and LendingTree mortgage referral unit. All of the remaining assets would be kept under the current IAC business segment. The results today only confirmed, in many eyes, that such drastic actions needed to be taken in order for the companies to compete. A separation would allow for better management incentivization, easier access to capital and improved operating efficiencies.

Unfortunately, there are many barriers that still remain before any splitup can occur. First, the company is involved in ongoing litigation with Liberty Media, who is attempting to clock the breakup unless the deal is structured to give them control of the new companies. Liberty currently holds 30 percent of IAC and 62 percent of its voting power. Liberty claims that Diller, who controls the voting rights of Liberty’s IAC shares through a proxy agreement, is contractually obligated to vote against the spin off that it opposes because its own stake would be further diluted.

IAC is also facing problems with its LendingTree division, which was forced to write down the value of its goodwill and intangible assets by over $475 million amid continuing difficulties in the mortgage markets. Many believe that any sale of this division while the mortgage markets are depressed would result in less-than-adequate premiums; after all, why sell when the segment is trading at a historic low? IAC also wrote down the value of its entertainment unit by over $57 million as the company sold fewer Sally Foster products and coupon books.

In the end, IAC still has many issues to face before it can even consider spinning off its various business segments. In addition to a legal battle, the company must work to improve profitability in its segments in order to lift the potential valuations of these units and show that they can remain a going-concern as independent companies. After all, once a new company’s price-to-earnings ratio is set at its initial offering, it’s a lot harder to increase in the future even with spectacular results. Combined, these factors make IACI a stock worth watching!

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The AOL-TimeWarner merger never was a match made in heaven, but now they may be preparing to divorce. Time Warner Inc. (NYSE: TWX), parent company of the two divisions, announced a broad restructuring plan today that would separate AOL’s internet-access business and potentially reduce its holdings in the company’s cable affiliate. The news comes after the company posted somewhat disappointing earnings - driven by cable television - and guided lower for the year. Shares moved up, however, on news that the company may finally be ready to undergo the drastic restructuring that it so desperately needs.

Chief executie Jeff Bewkes, who assumed his post earlier this year, laid out his turnaround plan alongside Time Warner’s earnings this quarter. The new plan calls for a separation of AOL’s internet-access business, a reduction the firm’s 84% stake in Time Warner Cable Inc. and aggressive cost cutting measures across the board. The news comes after the company reported that its fourth quarter net income slid 41% (due to gains last year), but met expectations with the help of blockbuster hits “Harry Potter” and “I Am Legend”. Meanwhile, the company’s stock sits between its 52-week highs and lows as investors are again preparing to wait.

Perhaps the most interesting portion of Time Warner’s turnaround plan is the restructuring efforts surrounding AOL in particular. Many believe that this could mean a sale of spin off of AOL’s internet-access business, which has been losing customers and seeing lower revenues as it continues to drop its subscription fees. It could also be a precursor to a merger with another online company in order to make it more competitive against rivals Google and the new “YahooSoft”. Others believe that Time Warner may be leaning down its AOL business in order to encourage a bid, fresh after Microsoft’s blockbuster bid for Yahoo. Perhaps a strategic acquisition or two would make it a key player worth a second look by Google or others.

In the end, Time Warner’s restructuring is long overdue since its failed merger all those years ago. It will be interesting to see how Bewkes takes action to turn around the troubled company and restore it on a path of profitability. Combined, these factors make TWX a stock worth watching!

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E*Trade Financial Corporation (NYSE: ETFC) shares rose today after insiders revealed a sharp increase in their holdings of the troubled online brokerage. The stock is more than 80% off of its highs primarily as a result of its subprime exposure, which led to speculation that it may be forced to shut its doors. In reality, the brokerage had plenty of liquidity and no real problems with its portfolio other than a write-down. Unfortunately, the speculation itself led to a very real exodus of its clients to supposedly “safer” brokers. The company has since unleashed an impressive turnaround that has many market participants bullish on the stock - including insiders!

E*Trade insiders began accumulating shares at an impressive rate. Ten insiders, including its chairman and acting chief executive, purchased 474,761 shares in the company last week alone. Notably, seven of these insiders made the purchases through open market transactions - that is, they purchased stock like anyone else with their own cash. The bulk of the recent purchases came after the company announced its turnaround plan, indicating a strong internal confidence in the plan they’ve laid out for the franchise. And so far, things seem to be paying off as shares have made a slight recovery off of their lows.

E*Trade’s turnaround plan hinges on its ability to regain customer confidence. The brokerage ran its annual superbowl ad this year to inspire such confidence, proclaiming that it is opening 1,000 new accounts daily. The fact that so many new customers are arriving and that they could afford that superbowl ad may be just what people need. In the end, its the clients that make the company, and if they can hit their targets, then there shouldn’t be any problems ahead. Institutions have also begun to buy into the turnaround as Maybach Financial added the company to their watchlist, and many more are sure to follow.

These factors make E*Trade a compelling buy at these levels. The brokerage has a book value of $6.13 per share while trading at only around $5.00 per share! Moreover, if we assign an industry multiple to this company (assuming it can turn itself around), we’d find a low end valuation of around $10.00 per share - roughly double where it is now! Opportunities like this one are found in companies that were beaten down on fear where very little was affected fundamentally. This has made the stock a compelling fundamental play for many investors at these levels.

In the end, if E*Trade can regain its customer base, then it is essentially right back where it started but for a lot cheaper than the write-down warranted. Insider buying is indicating that many are confident in a turnaround while 1,000 new accounts per day is certainly a point worth considering. Combined, these factors make ETFC a stock worth watching closely!

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Delta Airlines (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) may be moving away from deal talks that seemed almost certain just weeks ago. The two airlines received approval on January 11th to begin merger talks and rumors quickly surfaced that the negotiation was moving quickly as they hammered out the fine points. However, two stories today seem to contradict such rumors as the two airlines appear to be moving away from any possibility of a merger. Many shareholders still insist that the two airlines could combine as early as in the next two weeks amid pressure from institutional shareholders and investors looking for a change.

Comments by Delta officials to their hometown Atlanta Journal-Constitution newspaper that the airline had a strong standalone plan and was not afraid to take the lonely path caused the speculation that the deal was ill-fated. President Ed Bastian even told the paper that the company would not do a deal unless it filled holes in the airlines network; otherwise, it would simply be a drain on resources and not worth the effort. Meanwhile, TheStreet reported that Delta has recently been looking elsewhere towards targets like Continental Airlines Inc. (NYSE: CAL). However, nothing has been confirmed and we’ll have to wait and see the truth behind the story.

A wave of bankruptcies and rising oil prices has led to much speculation of consolidation in the airline industry. After all, it has become increasingly difficult for airlines to eek out a profit with costs soaring and competition rising. Many believe that the only viable option is to merge with competition in order to expand routes and increase economies of scale. Larger airlines can purchase more materials in bulk and realize significant cost savings while also working to eliminate many employees that have overlapping jobs. However, failed mergers can be much worse than never having done anything at all. Consequently, it is very important to practice due diligence.

In the end, it will be interesting to see where these airlines end up over the next few months. For now, it remains likely that Delta will continue to pursue Northwest while other targets may include Continental. Regardless, the airline industry remains full of stocks that are definitely worth watching over the next few months!

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