Grand Toys International Limited (NDAQ: GRIN) shares more than tripled today after the company agreed to purchase frisbee-maker Wham-O for $35 million. The toy-maker will pay a cash consideration of $35 million, adjusted for the liabilities of Whom-O, and 100 percent of the shares of its wholly-owned subsidiaries Hua Yang Holdings and Kord Holdings. Grand Toys also said that it would divest the low margin, non-core Hua Yang and Kord manufacturing businesses in order to fully focus on developing the Wham-O brand.

The news comes after a plethora of problems for Grand Toys, who has been struggling with both its own businesses as well as retaining its Nasdaq listing. Shareholders are hoping that the acquisition will help revitalize the company with names like Frisbee, Slip ‘n Slide, Hula Hoop, Morey, Boogie boards, Snow Boogie,and BZ Pro Boards. Grand Toys plans to obtain substantial growth by targeting international markets and driving synergies with its International Playthings subsidiary in the United States.

“The new Board of Directors of Grand Toys, which was assembled in mid-2007, has been focusing on developing a new direction and strategy for Grand Toys to give the company a platform for growth” comments David Howell, CFO of Grand Toys. “We believe the acquisition of Wham-O represents a transformational opportunity for Grand Toys and it will become the key asset around which we will build our business. In addition, the divestiture of the low margin, non- core Hua Yang and Kord manufacturing businesses frees up significant working capital for the company and allows us to reduce substantially our bank debt, creating a much healthier balance sheet.”

So, what does this all mean for shareholders? Well, Grand Toys has decided to take on some additional debt and divest its past businesses in an effort to acquire brands that truly have substantial value as they are recognized worldwide. Investors are hoping that this will be enough to turn the company around and drive higher profits and revenues. Combined, these factors make GRIN a stock worth watching!

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Institutional investors are required to disclose their significant holdings to the Securities and Exchange Commission through a Form 13F filing. One investor that filed today was billionaire activist investor Carl Icahn and his fund Icahn Capital LP’s activity for the period ended December 31, 2007. Although the investor has experienced issues with some of his holdings, he is still a large player in the market that is definitely worth watching given his spectacular annualized returns. So, without further adu, here are his major holdings:

1. Anadarko Petroleum (NYSE: APC) $970.6 million
2. BEA Systems (NDAQ: BEAS) $654.176 million
3. Biogen Idec (NDAQ: BIIB) $469.973 million
4. CSX Corp.(NYSE: CSX) $128.422 million
5. Lear Corp. (NYSE: LEA) $265.424 million
6. Macy’s (NYSE: M) $133.61 million
7. Motorola Inc. (NYSE: MOT) $969.881 million
8. J.C. Penney (NYSE: JCP) $183.274 million
9. Regeneron Pharma (NDAQ: REGN) $60.586 million
10. Temple Inland (NYSE: TIN) $71.9 million
11. Time Warner Cable (NYSE: TWC) $130 million
12. Time Warner Inc. (NYSE: TWX) $213.526 million
13. Unum Group (NYSE: UNM) $95.65 million
14. Williams Cos. Inc. (NYSE: WMB) $173.2 million

Investors can track Carl Icahn’s portfolio via the Schedule 13F filings; activist communications through Schedule 13D filings; and buying and selling through Form 4 filings. These are all filings that can be tracked through SECFilings.com and are definitely worth watching closely!

DryShips Inc. (NDAQ: DRYS) had a spectacular run last year when shipping prices soared for dry bulk shipments. Many investors now believe that the market may see another steep run-up as dry bulk shipping prices have again begun to rise while recent earnings from the sector clearly outperformed. Moreover, consolidation within the sector has helped to drive up the prices of all the players in the market. DryShips is one of the cheapest stocks in the sector that holds great promise - is now a time to buy?

The dry bulk shipping industry’s earnings is dependent on a combination of its spot rates and long-term leases. Spot rates spiked last year when they rose from $80,000 to around $190,000 on soaring demand. The demand leveled off along with the rest of the market, however, during the end of last year and beginning of this year. Now, prices appear to be on the rebound as rates have reached $120,000 so far this year (view chart). This is great news for bulk dry shippers like DryShips who have large fleets of vessels.

DryShips is expecting to earn $9.55 per share in 2007, which means that it is trading at just 8.1x earnings while many other companies in its industry are trading closer to 20x earnings. Even better, the company’s forecasted $18.18 per share earnings in 2008 mean that it is trading at just 4.2x forward earnings for this year! DryShips stock has risen around 35% since January of this year while it has only revised its estimates upwards. The company remains one of the cheapest stocks in the industry despite its recent moves upward.

There is also a catalyst at work within the industry. Greek brybulk shipper Excel Maritime Carries, Ltd. (EXM) announced its plan to buy Quintana Maritime Limited (QMAR) in January, which fueled M&A rumors across the industry. The chairman and controlling shareholder of Excel also predicted further consolidation looming in the sector as valuations remain low and future expectations remain high. DryShips remains one of the largest, but cheapest, companies in the industry meaning that it could become a target for a merger. Again, this is good news for the company that could be the catalyst needed to jump its share price.

In the end, the dry bulk shipping industry slowed down after its spectacular rise in 2007, but many of the fundamental factors behind the rise are still in place. Emerging markets and China are still growing while the economies outside of the U.S. appear to be making headway. DryShips remains one of the best performing and cheapest stocks in the industry that may be worth a second look. Combined, these factors make DRYS a stock worth watching over the next few months!

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MBIA Inc. (NYSE: MBI) is now appealing to lawmakers to stop the decline in its stock price. The troubled bond insurer submitted written testimony for a subcommittee of the U.S. House Committee on Financial Services arguing that lawmakers should step in to curb the “unscrupulous and dangerous market manipulation of short-sellers”. MBIA specifically mentioned Bill Ackman’s Pershing Square Capital Management hedge fund, which has not only been the most vocal short-seller in the market but also increasing its short position every week. Are short-sellers to blame or are they the ones who have been right all along?

Bill Ackman has been bearish on MBIA for around five years, warning investors back in the 90s that the company’s collateralized debt obligations (CDOs) may put its Triple-A rating at risk. The activist hedge fund also brought up several “questionable transactions” that involved insuring a loss after the loss and then collecting on the insurance. Ackman even decided to write a 60-page paper entitled “Is MBIA Triple A?” in December 2002 shortly before these problems began. Now, after the CDOs have collapsed, and the company paid a fine for those questionable transactions, the stock is down more than 80 percent and all they can do is complain to regulators.

Bill Ackman estimates that the bond insurer faces more than $11 billion of potential losses, which would make it nearly impossible to avoid bankruptcy if it does not find a substantial amount of outside capital. However, MBIA argued in this letter to regulators that the model and data used in this analysis was flawed. In particular, Ackman used a random assortment of 1,267 securities to estimate losses while MBIA used a loan-by-loan analysis to make their estimates. Ackman also took a particular interest in the holding companies, reasoning that if the bond insurers’ holding companies were deprived of cash flow, their ratings would fall, and their operating units’ ratings would fall as well. The company complained that this meant he had no real interest in “saving bond insurers” as he once said.

In the end, Bill Ackman has been proven right so far while MBIA has repeatedly had to restate losses. As a result, many investors are beginning to trust the former more so than the latter. It will be interesting to see if the company receives any support from regulators or other parties to bail them out or meets the fate the Ackman has been predicting all of these years - bankruptcy. For now, it appears that it is on that track until it can actually report a decline in the amount of losses that it is posting from bad CDOs and mortgages. Regardless, this is a stock that is definitely worth watching over the next few months!

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ValueClick, Inc. (NDAQ: VCLK) shares rose 4 percent during today’s session and jumped an additional 6 percent after hours after the company announced both mixed earnings and the fact that it settled a probe launched by the Federal Trade Commission (FTC). Despite the poor economic sentiment in the United States, the company seems to believe that its future remains bright. Shareholders are hoping that these events will help clear clouds over the company’s head and pave the way for a long-awaited rise in share price. So, is it time to buy?

ValueClick announced revenues of $183.1 million on an adjusted-EBITDA of $45.6 million, which exceeded previously issued guidance and increased 14 percent from the fourth quarter of 2006. Meanwhile, diluted net income per share came in at $0.18, which was at the high end of the previously issued guidance range. The company’s balance sheet also looks healthy with $287.5 million in cash, cash equivalents and marketable securities with no long-term debt. Even better, the company currently has $50.6 million of authorization remaining on its stock repurchase program.

ValueClick also announced that it paid $2.9 million to settle the FTC lawsuit that alleged the firm used deceptive marketing practices that violated the CAN-SPAM Act and FTC Act. This development eliminate the cloud that has been hanging over the company’s head for some time and led to an improvement in its marketing practices. The online marketing firm believes that this development will also help set the guidelines for the lead generation industry as a whole and will establish a new set of best-practices.

In the end, this is all good news for ValueClick and its shareholders. The company’s revenue mix remains favorable and its operating margins appear to have finally bottomed for the time being. However, investors should be careful to buy this company for the long-term as the sector in general continues to suffer from increased competition that is pressuring margins despite an increasing move to the Internet for marketing expenditures. Combined, these factors definitely make VCLK a stock worth watching!

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Vonage Holdings Corp. (NYSE: VG) shares rose over five percent today as its losses narrowed and subscribers rose. Unfortunately, the top-line numbers do not accurately reflect what is really going on in the company. A closer investigation reveals that the company has several internal trends that make their earnings unsustainable over the long-term if it can’t get its act together. So, what are these trends and what does it mean for Vonage going forward?

Vonage reported earnings that were lower than analysts expected, but greater than what the street predicted, sending shares higher in today’s session before dropping after hours. The net loss for this quarter came in at $11.1 million from $117 million a year earlier. Meanwhile, subscriber additions came in at 56,000 which is down from 166,000 last year. The company may have lowered its losses, but only because it reduced its marketing expenditures. Unfortunately, the company’s revenue per line declined while its marketing costs increased. Clearly, this is an unsustainable trend that must be reversed before this company can be a viable investment.

Vonage also has $253 in convertible debt that can be put back onto the company in December of 2008. This is money that the company cannot afford to pay at current rates, and they are in discussions to refinance the debt to make it more manageable. Vonage said that it believed that the situation will be resolved, but there are no assurances. As a result, it will likely receive a “going concern” letter from its auditor soon that may send shares lower. And to make matters even worse, the company announced that it would restate its second and third quarter results to correct its reported non-cash compensation expense, which it believes is off-base.

In the end, these are major concerns that Vonage must address in order to avoid some major problems and perhaps even bankruptcy. Additionally, there are some near-term announcements that could drop the stock substantially if they indeed surface. Combined, these factors make VG a good short target and definitely a stock that non-speculators should stay away from until the picture clears up!

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Borders Group, Inc. (NYSE: BGP) is one of the many retailers hit hard by the economic downturn. Shares are trading more than 50 percent off of their 52-week highs while investors express concerns over the company’s lackluster profits and thinning margins. Increased competition from both its brick-and-morter competitor, Barnes & Noble Inc. (NYSE: BKS), and online competition from Amazon.com, Inc. (NDAQ: AMZN), has cast doubt on the company’s ability to grow in any meaningful way. So, why buy this company?

Bill Ackman’s Pershing Square is one major investor that has taken a major interest in the beaten down company. The activist hedge fund has recently built up an 18 percent stake in the troubled bookstore with options and derivatives that could allow him to boost it to 26.2 percent. Meanwhile, Pershing Square’s Richard Mcguire was elected to the company’s board of directors on January 17th, which could give the hedge fund substantial leverage when proposing any changes. However, many remain unsure of what the famous activist sees in the bookseller that is feeling the heat from its competitors.

Some believe that it could be a vote of confidence in the company’s turnaround plan. Borders is prepared to open its new concept store this Thursday in Waters Place shopping Plaza in Pittsfield, which has many investors excited about the new possibilities. The concept store has been hailed by the company as a new retailing model that will embrace technology, boost sales, and differenciate the company from its larger rival Barnes & Noble. Others suggest that the takeover rumors that have surrounding the company for so long may finally come to fruition with the stock trading at record lows.

The Borders Group itself is also trading at some cheap multiples. The company’s price-to-book rate is very low relative to its peers, suggesting that the company’s assets are undervalued. Meanwhile, its price-to-sales ratio is also very low, suggesting that the company’s revenues are strong if it can cut costs and debt to increase profitability. In the end, these components do make for a good turnaround play provided that the company can orchestrate a successful turnaround. Many believe, however, that with an activist investor on the board, the company should be able to do something right!

Overall, Borders Group is an interesting stock that is definitely worth watching. Ackman’s portfolio returned 22% last year and his fund has a great track record of success over the long-term. His vote of confidence in the turnaround of this company along with his director on the board make this a stock that is definitely worth watching over the next months and years!

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Playboy Enterprises, Inc. (NYSE: PLA) reported a disappointing fourth quarter, with more questions arising about the longterm viability of its business model. According to Playboy's earnings report, it lost $1.1 million in the last quarter of the year on stagnant revenues of $85.9 million.

Though the poor earnings reflect a one-time charge related to the sale of its Andrita television studio, it is the general condition of the business, not the specific figure that the company lost, that is driving concerns.

Though international TV revenue and online revenue rose by 10% and 2% respectively, domestic TV revenue dropped 10% and entertainment revenue dropped 3%. What everyone knows Playboy for, of course, is Playboy Magazine, which saw a slight drop in long-stagnant revenue which now is only $24.7 million – as a result of less subscriptions and advertising. This is a trend even management admits won't be reversed soon, as it anticipates a further 30% loss in magazine revenue just in the first quarter of this year because of continued shrinking advertising.

Chief Executive Christie Hefner, mustering optimism, said in the earnings report, “we expect licensing to report another year of growth in our consumer products business as we expand our distribution and product lines, as well as open new Playboy concept stores...We also expect to close another location-based entertainment deal, building a pipeline that will provide a steady stream of openings to those high-margin, high-profile venues in years to come."

Christie Hefner is referencing the only real bright-spot in Playboy's business – brand recognition. This has allowed Playboy to grow licensing revenues 18% to $10.5 in the quarter. The company also plans on outsourcing its Web commerce and merchandising operations to more experienced companies.

The question then becomes, for how long will Playboy be a viable brand when the underlying business that built that brand – Playboy Magazine – is in seemingly hopeless decline? The market sentiment seems decidedly negative at this point, with Playboy shares still down for the day 4% after losing as much as 10% in early trading.

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Microsoft Corporation (NDAQ: MSFT) responded to Yahoo! Inc.’s (NDAQ: YHOO) rejection of their takeover offer yesterday in a regulatory filing with the Securities and Exchange Commission. Yahoo leaders are reportedly fishing for a $40+ offer for the company and some believe that Microsoft may be willing to pay up. Others suggest that the company may be woring with another company, like Time Warner Inc.’s (NYSE: TWX) AOL division. Regardless, Microsoft’s response gives us a key hint to future developments.

Here’s the reply from Microsoft’s 8-K filing with the SEC:

It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.

We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.

A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.

The Yahoo! response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

On February 1, 2008, Microsoft announced a proposal to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion and a 62 percent premium above the closing price of Yahoo! common stock based on the closing prices of the stocks of both companies on Jan. 31, 2008, the last day of trading prior to Microsoft’s announcement. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock.

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General Motors Corporation (NYSE: GM) reported a $38.7 billion net loss for 2007, a company record. Though the shockingly large figure is an accounting reality more than a business one – GM used $39 billion of tax credits in the third quarter of the year that would have otherwise expired.
 
Despite tax management being the bulk of the loss, GM had combined losses of $1.7 billion in North American markets compared to a more modest profit of $437 from Latin America and Asia. The U.S. auto market has seen weaker sales in general recently due to a slow economy, but U.S. automakers Ford Motor Company (NYSE: F) and GM are particularly vulnerable because of their reliance on expensive pickup trucks and SUVs that use more fuel and require more financing. This combination generally makes them more difficult to sell in weak economies or during periods of higher fuel costs, both of which the U.S. is now experiencing.
 
Acknowledging the reality that U.S. sales may continue to be problematic, GM Chief Financial Officer Fritz Henderson said in the wake of today’s announcement “We are talking about global automotive operations -- that is where we see an improvement.”
 
GM is also seeking to minimize its largest cost, labor. It announced, in an unprecedented move, that it is offering voluntary buyouts to all of its U.S. union workers, totalling about 74,000 employees.
 
Depending on the employee, the offer includes up to a $62,500 payout in the form of a lumpsum of cash, retirement benefits or an annuity. The buyout is designed to drastically reduce the number of UAW represented employees and replace them with lower-wage workers in an attempt to compete globally. Even so, most analysts doubt GM will be able to make a profit in 2008.
 
Though GM faces severe challenges, the company still has more than $27 billion in cash and remains the world’s largest automaker. Whether or not it can maintain either of these positions may largely rest on the success of its worker buyout program.
 
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