Apple Inc. (NDAQ: AAPL) shares fell sharply today amid increasing concerns that it will not meet its sales goal of 10 million iPhones this year. Meanwhile, reports also surfaced that a growing number of unlocked phones are being used on other carriers and hurting its revenue share with AT&T Inc. (NYSE: T). The new product only accounts for a small portion of the firm’s revenues this year, but analysts are predicting that it could account for upwards of a quarter of its revenues during the next four years. So, are these problems that Apple can overcome or are they in some serious trouble?

Apple is facing two large problems with its iPhones. First, there are reports of illegal shipments of exported iPhones returning to the United States and being sold for far less. It is believed that Apple generates approximately $100 per sale in the United States, but this development drops that number far lower. Secondly, there are an increasing number of unlocked iPhones that are causing the company to lose out on revenue from carrier partnerships. It is believed that Apple generates more than $200 in gross profit over the life of the phone through such arrangements. Reports have shown that over a million such unlocked iPhones have hit the market since the product was released.

The question shareholders have to ask is just how much the iPhone is worth to Apple. Shares began at around $85 per share when Steve Jobs first announced the new phone before dropping more than 40% of their value from their peak. This drop has many analysts believing that the stock is undervalued, especially given its strong free cash flow generation. Other suggest that negative news surrounding the iPhone and iPod will only make things worse before they get any better. And finally, there are some that are concerned about the rising cost of the iPhone as it could hurt sales of the legitimate copies while encouraging more consumers to seek illegal imports.

In the end, Apple shares will likely be volatile over the coming months as investors try and sort out the true impact that these events have on sales. It will be interesting to see if Apple decides to eventually drop its costs in order to encourage more buyers and take advantage of its lucrative carrier partnerships. Meanwhile, there seems to be no slowdown in unlocked iPhones. However, as the iPhone goes more mainstream, it will be consumed by less tech-savvy people that will be less likely to purchase and use an unlocked iPhone. Combined, these factors make AAPL a stock that is definitely worth watching over the coming months!

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Motorola Inc. (NYSE: MOT) shares are under pressure after few buyers appear to be interested in its handset business. The division has been on the auction block for three weeks and top vendors Nokia Corporation (NYSE: NOK), Samsung Electronics, and LG Electronics have all expressed zero interest. This has many investors concerned that the great Carl Icahn may have over-estimated the unit’s value. This has pushed the stock down below $11.50, a level not seen since Carl Icahn first took an interest in the company. So, is this a stock worth watching at these levels?

Motorola’s prospects may look bleak, but not everyone is convinced that the company is in trouble. Many long-term investors insist that one bad year on the design side doesn’t necessarily mean it is in serious trouble. Others believe that the company would still represent a great value for someone who wants to step into the wireless arena. And what about the lack of interest for the handset division? There are some that believe buyers are worried that the products may not be worth as much without the Motorola logo, which means that it is simply an “integration decision” rather than a “financial decision” not to buy.

Billionaire Carl Icahn also continues to count himself among the bulls on the stock. The activist investor insists that the handset division is worth $19 billion and needs to be separated in order to attract top management. This valuation is equal to the divisions sale’s last year and compares to Motorola’s total market value of $25.7 billion. The actual valuation of the unit can be debated. It produced one in every three cell phones within the U.S. market last year, but it did so with losses totalling $1.9 billion. Meanwhile, there are already signs that carriers are beginning to feature more phones from other competitors.

In the end, this is bad news for Motorola shareholders. A prolonged search process only further damages the prospects of the division as many more analysts are switching to a “sell” on the company. Shareholders can count Carl Icahn on their side, however, who may opt to take more drastic measures and call for a spin-off, private equity buyout, or other method to unlock the value in the unit. Regardless, this is definitely a stock that is worth watching over the next few months!

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Financier Carl Icahn, now worth more than $14 billion, disclosed in a 13G filing today that he now owns slightly more than 5% of the manufacturer Keystone Consolidated Industries, Inc. (OTC: KYCN). Though the nature of the filing indicates Icahn only has a "passive" investment in the company, news of his position sent the stock up over 5%.

Keystone is "a manufacturer of steel fabricated wire products, welded wire reinforcement, coiled rebar, industrial wire and wire rod for the agricultural, industrial, construction, original equipment manufacturer and retail consumer markets" in the U.S. The company is small, with a market capitalization of only $100 million, and its reputation hasn't fully recovered from filing for bankruptcy protection in 2004.

On paper, Keystone has been performing quite well recently with $57 million in net income for 2006 on $440 million in revenue - the company has a P/E of only 1.5 as the stock is hovering around its 52-week low price.

The company does have $360 million in total liabilities that are anchoring its stock price, but Keystone seems to be taking serious steps to become more robust. It just recently announced a reduction in its salaried workforce as well as $25 million in additional shares available to existing shareholders, the proceeds of which will be used to reduce the balance of its expensive revolving credit line.

Icahn certainly has a stellar track record, and his vote of confidence in Keystone, like his confidence in J.C. Penny, definitely makes it worth watching closely.

Icahn's Portfolio
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J.C. Penney Company, Inc. (NYSE: JCP) reported a steep drop in its fourth-quarter net income yesterday, citing weaker consumer spending. The middle-market retailer was forced to increase its promotional levels and in-season clearance activities to retain revenues, but profits dropped on the lower margins. The company also projected first-quarter and fiscal-year earnings largely below analyst expectations. Luckily, the news came as little surprise to shareholders who were expecting heavily losses, and shares actually moved up on the day. So, with such low expectations, is J.C. Penney a company worth looking at going forward?

Retailers always suffer during cycles where consumer spending falls, but they quick jump back when things return to normal. The big question becomes when a return to normalcy will occur. Consumer spending was hit thanks to declining housing prices due to the subprime collapse. Many consumers were tapping their home equity line of credit to pay off credit card bills, so when that source of funds dried up spending began to slow. Meanwhile, foreclosures, defaults, and bankruptcies are continuing to rise as consumers have no way out of debt. This has caused the securities for these instruments to also fall dramatically in value. Combined, these factors have led to the tough market and low levels of consumer spending in recent months.

Billionaire activist investor Carl Icahn quietly amassed a huge stake in J.C. Penney that was revealed earlier this month. The exact size of the stake is unknown, but sources close to the situation say it is among his top five holdings. The activist investor is known for building stakes in undervalued companies and then taking action to unlock that value through sales, spin-offs, and restructurings. It is unclear what his plans are with J.C. Penney, but he clearly believes that the stock is undervalued. This follows similar rhetoric from other activists like Bill Ackman on Target Corporation (NYSE: TGT). It appears that many now believe that the retail sector is undervalued and are buying up substantial stakes.

It is impossible to deny that many retailers like J.C. Penney are trading at a substantial discount to their past valuations. J.C. Penney is trading at just 9.39x earnings and 13x forward earnings - a cheap stock by any account. In the past, this company has traded with a ratio upwards of 20x. This means that purely on a valuation basis, the stock is 50% undervalued! Many also insist that the breakup value of the company also exceeds its market price, which makes it a fail-safe investment. In the end, these factors make JCP a stock worth watching over the next year or so!

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MGM Mirage (NYSE: MGM) is making headlines today after quadrupling its fourth-quarter net income on strong casino performance combined with a huge outside investment. Net income climbed to $872.2 million from $201.6 million a year ago with revenue increasing 4.5 percent to $1.93 billion, both of which exceeded analysts' estimates. These results were partially driven by a 5% increase in hotel revenue, a 2% increase in gambling revenue, and a 17% increase in lucrative baccarat volume.

Though MGM's core businesses of resorts and gambling seem strong, especially given the economy, they fail to account for the monstrous climb in net income. Instead, it was largely helped by Dubai World's $3 billion investment in MGM related to its CityCenter project - a new mega-resort on the Las Vegas Strip. This investment led to a one-time gain for MGM of $1 billion.

"Even while closing on the most historic transaction in our company's history - the CityCenter joint venture and strategic relationship with Dubai World - our dedicated employees delivered exceptional operating results," CEO Terry Lanni said, noting that the company is "ideally positioned to excel domestically and internationally." Though the deal with Dubai World is ironic given that gambling is banned in Dubai, most analysts agree that the partnership is good for MGM because of Dubai World's very deep pockets and extensive experience with real estate projects.

MGM is seeking such partnerships as it attempts to expand its existing Las Vegas holdings but enter into Atlantic City and abroad. MGM now sees itself not as a casino operator but a resort brand, and it is attempting to leverage that brand in new markets.

MGM operates resorts such as the Bellagio, Mandalay Bay and Circus Circus in Las Vegas, the MGM Grand Detroit aptly located in Detroit, and a casino property in the Asian gambling mecca Macau. Though gambling revenues are notoriously unpredictable, MGM is positioning itself strongly across markets through strategic partnerships and may preform accordingly in the coming years.

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Concord Camera Corp. (NDAQ: LENS) has more to worry about than a cold market as activist shareholders are now (in so many words) calling for an outright sale. The camera-maker has experienced steep declines in sales and margins that have resulted in over fifteen consecutive quarters of losses. This prompted the company to pursue its own evaluation of strategic alternatives as many are speculating that a financial buyer may be willing to step in and acquire the company at a premium. So, does this make LENS a buying opportunity before such an announcement?

Concord is engaged in designing, developing, manufacturing and selling single-use and 35-millimeter traditional film cameras. The firm manufactures the cameras in China and hands them over to retail distribution partners who put them on store shelves around the world. This is a market that still exists thanks to tourism, but faces steep declines in sales as digital cameras continue to replace traditional film cameras. Worse, the company is operating on razor thin margins due to its middle-man nature that makes it hard to compete effectively on price with a growing number of manufacturers that are doubling as distributors.

Everest Special Situation Fund recently purchased a five percent stake in the company and communicated their belief that Concord shares are extremely undervalued despite poor operating performance. The activist fund believes that the company is in an excellent position to initiate “substantial changes” to its business. To this end, the board of directors announced that their special committee established to explore strategic alternatives was close to making a decision. However many investors, including Everest, are worried that the result may be that the company is best off taking the lonely road rather than pushing for a sale.

Everest demanded (in so many words) a sale in its February 20th letter to the board. The fund noted that it has collaborated with a number of companies in situations similar to Concord’s in the past, acting as a liaison between investors and acquiring companies. Everest urged the board to utilize their expertise and pursue strategic alternatives or else they would seek representation on the board to protect their rights as stockholders and unlock value. Clearly, many people are looking for Concord to put itself up for sale at this point in order to reverse its sixteen straight quarters of losses and maximize value for stockholders. Indeed, privatizing the company alone would substantially reduce expenses for a company with a market cap of just $25 million!

In the end, Concord is a company that may be of interest to a financial buyer as its shares are extremely undervalued. In fact, privatization alone would likely save the company enough money in public company costs to justify a takeover. Many shareholders are in support of such a decision, but fear that the company may put up a fight before pursuing alternatives. Combined, these factors make LENS a stock worth watching closely over the next few months!

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The Procter & Gamble Company (NYSE: PG) recently announced that it would split off its Folgers coffee division into a stand-alone company. The conglomerate would offer its shareholders the opportunity to participate by exchanging their P&G shares for stock in Folgers. Interestingly, many analysts are expecting P&G to sweeten the deal by offering an attractive rate of exchange on Folgers stock to draw interest in the new company. This has many opportunistic investors watching to see just how sweet the deal will be as it could represent a great investment opportunity. So, is this a stock worth watching for your portfolio?

Foldgers will be a single product company in a difficult market once it splits off from its parent. The coffee maker may dominate the ground-coffee market in the U.S. with $1 billion in sales, but it is quickly losing ground to specialty coffee makers as demand for its plain-vanilla coffee is declining. Competitors like Starbucks Corporation (NYSE: SBUX) are stepping in to take their place. In fact, many are speculating that P&G is divesting the segment because its sales growht is below that of the conglomerate’s annual target. Foldgers will likely face a difficult market on its own and may require some work in the future before it can start posting impressive growth numbers.

So, why is Foldgers such a great deal then? The first thing to consider is that P&G will likely be forced to offer an attractive valuation that will provide some immediate returns to shareholders. Secondly, the coffee maker may attract some interest in this financial environment because it is in a sector that is relatively insensitive to economic problems. Third, Foldgers will have a market cap small enough to make it a potential acquisition candidate for foreign companies looking to leverage the cheap dollar. And finally, spin offs statistically tend to outperform the overall market during their first two years for a variety of reasons.

In the end, it is likely that most P&G shareholders will opt out of exchanging their shares because they like the safety of P&G. However, there are many catalysts that could propel this new company to new highs and this may be a great opportunity to get in at a steep discount. Combined, these factors make PG a stock worth watching closely as it moves closer to splitting off its Foldgers division!

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IONA Technologies plc (NDAQ: IONA) shares moved up on the day after the company announced that it had hired Lehman Brothers to evaluate a broad range of strategic alternatives that could include a sale or merger. The stock is trading nearly 50 percent off of its 52-week highs after becoming one of Ireland’s top technology success stories back in the dot-com boom. Since then, shares have declined and many investors are now looking for some kind of catalyst in order to unlock value in the stock. So, is this evaluation of strategic alternatives the answer that shareholders have been looking for?

IONA grew from obscurity in the distributed computing group labs at TCD to a major player that counts large corporations like Boeing among its clients. In fact, the middleware technology firm became the fifth largest NASDAQ IPO of its time in 1997. The company withered during the technology downturn, however, and is now struggling to retain profitability despite new software and a series of acquisitions in the space. IONA’s most recent earnings report showed a loss of $1.7 million for 2007 compared with a profit of $3.6 million a year earlier. Since the company’s revenues only declined modestly, this can be attributed to rapidly shrinking margins that could continue to erode value until something changes.

Takeover speculation has filled the gap left by under performance and recently sent shares substantially higher. Earlier this month, the company confirmed that it had received an unsolicited “expression of interest” from a third party interested in acquiring the firm. Now, the company is taking the process one step further and launching a full-out evaluation in order to find the best possible price for any acquisition. There is no guarantee that a sale will result, but with a professional advisor shareholders can be sure that the best value will be sought. In the end, this could make IONA a stock worth holding.

The question then becomes: How much is IONA worth in the event of a takeover? Well, the company has very little to offer an acquiring firm financially, but it does have no debt and valuable technology. The company is also solid in terms of its revenues but is struggling with share compensation and other expenses that can be easily cut by an acquirer. As a result, the company’s technology and customer base may warrant a takeover price based on revenues instead of the usual EBITDA. This could mean a buyout price 25% to 30% higher than the current market price. Combined, these factors make IONA a stock worth watching!

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Wendy’s International (NYSE: WEN) shares are well off of their 52-week highs of around $42.22 but the company is moving forward with its turnaround plan while an activist investor is still pushing for a sale. Management is now facing a race against the clock to prove that it can remain a viable investment on its own before billionaire activist investor Nelson Peltz makes his second run at the board in an attempt to take over and sell the company. Luckily, shareholders benefit from either situation and it has never been a better time to own Wendy’s!

Wendy’s announced new plans today to roll out inexpensive sandwich wraps and a new hamburger to jump start sales as the U.S. economy weakens. The fast food chain acknowledged that the consumer environment has changed drastically from a year ago and is now focusing on growing the top line through unique new offerings. The chief executive is focused on ending five years of declining traffic with its most aggressive new product line-up since the mid-1990’s. Meanwhile, the company is also continuing to improve its bottom line by focusing on raising margins by restructuring and controlling costs. Some of these efforts have been seen in recent earnings, but the company still has a long way to go towards any meaningful turnaround.

Wendy’s has also been weighing a sale since June 2007 under pressure from billionaire activist investor Nelson Peltz, who owns nearly 10% of the company and is now seeking control after failing to successfully purchase it. Peltz announced his plans to overhaul the company’s board of directors on February 11th when he nominated his own slate of directors in a regulatory filing with the SEC. The legendary activist proposed expanding the board to 15 members and nominating six in a move that would give him effective control over the company as he already control three seats since 2006. Given his prior pushes towards a sale, once can assume that his motives have not changed and that he will push to sell the company at an attractive price.

In the end, this is all good news for shareholders who have nothing to lose and everything to gain is Nelson Peltz successfully takes over the company while the company itself is already working on a turnaround in case the move falls through. Wendy’s is a stock in transition and it will be interesting to see what happens to it over the next few months as the next annual meeting approaches. Combined, these factors make WEN a stock worth watching!

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3Com Corporation (NASDAQ: COMS) is down 20% in midday trading due to the seemingly collapse of its acquisition by Bain Capital LLC. The deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition.

3Com is a billion dollar company that has seen better days but still has a valuable business providing secure network solutions, which is exactly why the CFIUS didn't like the proposed $2.2 billion deal. Bain Capital LLC partnered with the Chinese company Huawei Technologies to purchase 3Com, and though Bain would have had the lions share of the equity, over 80%, Huawei's stake concerned the Committee on Foreign Investment in the U.S. or CFIUS.

Huawei, the largest network company in China with strong ties to the country's Communist government, has been accused in the past of selling communications equipment illegally to rogue states such as Saddam Hussein's Iraq. In addition, the company raises concerns even superficially as it is run by a former Chinese Army Officer.

3Com provides some network security solutions to the U.S. Defense Department, and with Chinese hackers seen as a major threat to U.S. infrastructure this acquisition was a hot political issue. In fact, the senior Republican member of the House Foreign Affairs Committee even sponsored a bill to specifically prevent 3Com's sale.

Under such scrutiny, Bain decided to drop its request for approval of the deal by the CFIUS, effectively meaning the deal is dead in its current form. The problematic Defense Department business is actually done only by a small wing of 3Com known as TippingPoint, and there is a possibility the deal could be renegotiated to exclude that unit.

3Com's CEO Edgar Masri said "We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,'' but that 3Com and Bain "remain committed to continuing discussions.''

It is possible that a deal could still be done given that TippingPoint accounts for only 8% of 3Com's revenue, but in a slow economy with 3Com trading some 40% below the proposed acquisition price, Bain might be just as happy to let the deal die for the time being.

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