The Boeing Company (NYSE: BA) isn’t happy about the U.S. Air Force’s recent decision to award European competitor Northrop Grumman (NYSE: NOC) with a major military contract and it is throwing a very public fit. The aerospace company called the competition for its air tanker contract “seriously flawed” and even so far as to say that the Air Force selected the “wrong airplane” for the warfighter. The move highlights the increasing concerns surrounding military contracts and could result in some widespread industry and governmental changes.

“This is an extraordinary step rarely taken by our company, and one we take very seriously. Based upon what we have seen, we continue to believe we submitted the most capable, lowest risk, lowest (cost) … airplane,” said Jim McNerney, chairman, president and chief executive officer of Chicago-based Boeing. Program manager Mark McGraw added, “Our analysis of the data presented by the Air Force shows that this competition was seriously flawed and resulted in the selection of the wrong airplane for the warfighter.”

Boeing filed a formal protest with the U.S. Government Accountability Office (GAO) regarding the airforce’s decision charging that the Air Force changed the rules for choosing the tanker during the course of the competition, which resulted in the Air Force choosing an inferior plane. Coincidentally, without the contract, Boeing may be forced to shut down its 767 line in Everett by 2012. So, while Boeing has portrayed the government as at fault, it could have other motives.

Let’s not forget when former Boeing chief financial officer Michael Sears received four months in prison for illegally negotiating a $250,000-a-year job for an Air Force contracting officer while she held sway over a potential multibillion-dollar contract sought by the aircraft manufacturer. Then again, problems are hardly limited to Boeing. Many major players in the defense industry have built strong bonds with Air Force personnel in order to sway decision-making.

The apparent corruption in government military contracting has been a much heated debate that is just starting to receive the attention that it should from lawmakers. These regulators are now looking for ways to better control the process and open it up to as many bidders as possible to get the best price possible. Whether or not these decisions will yield any real results remains to be seen, but this event certainly adds gas to the fire!

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Google Inc. (NASDAQ: GOOG) officially took over ad tracker DoubleClick Inc. today after the EU approved the $3.1 billion deal first announced almost a year ago. The EU found that the deal won't prevent competition in online advertising. Its official statement read:

“The Commission’s in-depth market investigation found that Google and DoubleClick were not exerting major competitive constraints on each other’s activities and could, therefore, not be considered as competitors at the moment.”

Google shares are up almost 5% on the news, with Google CEO and Chairman Eric Schmidt writing in his official blog that he is "pleased to share the news that we completed our acquisition of DoubleClick today. Although it's been nearly a year since we announced our intention to acquire DoubleClick last April, we are no less excited today about the benefits that the combination of our two companies will bring to the online advertising market."

United States regulators cleared it in December. Approval from the EU was the last hurdle before the deal could conclude.

The combination of the two companies led to objections from companies such as Microsoft and Yahoo, who were concerned about Google's potential control over ad prices. U.S. regulators, however, dismissed such concerns in December, and now with EU approval the real question is whether Google will indeed reap benefits from the acquisition.

Schmidt said combining with DoubleClick will allow more rapid ad advances, specifically better ad targeting. The major concern stemming from such promises is not economic but personal privacy. Ad targeting requires knowing the user, and privacy advocates are very concerned about such developments.

Setting aside such concerns, the fact is that this purchase finally gives Google a place in online display ads - which is good news for them and bad news for their competitors.

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Target Corporation (NYSE: TGT) may be a little too loose with its money after it ended the fourth quarter with $8.62 billion in outstanding loans on its consumer credit card division. The attitude of invincibility has many analysts and investors worried at a time when other credit card issuers like American Express (NYSE: AXP) are suffering from rising defaults. However, others argue that private label cards won’t follow the same trends as pure-play credit card companies. So, are these concerns legitimate or simply the product of an overzealous analyst?

Target is one of the only retailers that is actually expanding its private label credit card business during these tough economic conditions. The company’s $8.62 billion in outstanding loans is up 29% from its $6.71 billion outstanding a year earlier. Worse, Target relies heavily on the division to drive revenues with $103 million of its $128 million in earnings last year coming from credit cards. These issues have many analysts worried that the retailer has taken a far too aggressive stance during a tough economic time period.

Many investors and analysts are concerned that the high lagged loss rate may mean that the company relaxed its underwriting standards too much as it pushed many of its private-label cardholders to Target Visa cards with much greater lines of credit. As a result, many are predicting the company’s loss rate associated with its credit card division to be in excess of 8% for the year. Meanwhile, the company’s high growth rate in the past makes it difficult to see any deterioration in credit that has already happened.

Target officials, however, dismissed these claims as simply unwarranted. Chief Financial Officer Douglas Scovanner told the Wall Street Journal that the growth in the credit card portfolio is absolutely not a function of a loosening of credit standards or a lowering of credit quality in their portfolio. The executive also noted that he expects the company report credit losses on about 7% of its loans this year, which is up from 5.9% in the last fiscal year - but hardly a catastrophe.

In the end, these concerns are certainly warranted given Target’s significantly worse creditworthiness and default rates. However, the company has already forecasted a 7% loss rate that should account for most of these expected losses. The accurate estimate remains to be seen, but this is definitely a situation worth watching given Target’s huge reliance on its credit card division for earnings growth!

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Build-A-Bear Workshop, Inc. (NYSE: BBW) shareholders may have to build their value somewhere else. The interactive entertainment retailer announced today that tightened credit markets and a weak retail environment prevented it from pursuing the strategic alternative that so many investors were expecting - a sale. Instead, the company opted to double its share repurchase program and adopt a broad range of operational initiatives according to their 8-K filing with the SEC. So, is this 15% decline justified?

Investors may be disappointed with the lack of a sale, but perhaps it is understandable given the current economic climate. Instead, the company chose to focus on improving its operation performance until things improve. Specifically, the company decided to adopt the following initiatives:

1. Focusing on existing store sales by slowing new store growth to approximately 25 stores - down from 50 stores in 2007 - and realigning store operations management by creating a new position, Managing Director - Workshop Experience, focused on continuing to energize and update the store experience.
2. Enhancing brand appeal with children and growing store sales through raising awareness of our new online “world” website, buildabearville.com.
3. Continuing the position traction experienced in the European operations during the fiscal 2007 fourth quarter through raising brand awareness, increasing average transaction value, and continuing growth of the in-store parties business.
4. Growing store sales by leveraging and expanding our loyalty club program through improved and more frequent communication to members, adding new Guests to the club, and introducing the program in United Kingdom stores.
5. Attracting new Guests through multimedia marketing initiatives, including a new TV advertising campaign that will launch in the second quarter and will leverage buildabearville.com as a new platform for communicating with Guests.
6. Expanding international franchise fee revenues with the addition of 15 to 20 new franchise stores, including a new store in the United Arab Emirates.

These initiatives are all good news as they will force the company to limit its spending while increasing its revenues. This, in turn, should expand its multiple and make any future acquisitions much more attractive to shareholders. So, while today’s news may be bad for the short-term, it is likely the best solution for the long-term. Combined, these factors make BBW a stock worth watching closely over the next year!

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Cadbury Schweppes (NYSE: CSG) finally set the date for the highly anticipated spin-off of its U.S. beverages unit in a 6-K filing with the SEC. Shares in the spin-off are to list on the New York Stock Exchange on May 7th if the measure is approved at the company’s upcoming April 11th meeting. The division - to be called Dr Pepper Snapple Group - includes Schweppes, Dr Pepper cola, Canada Dry ginger ale and fruit-flavored Snapple teas. So, should investors look to buy into this spin-off?

The Dr Pepper Snapple Group will own some of the best brands in the industry. Snapple alone has proven to be a great investment for its many holders, including Nelson Peltz who purchased it for $300 million and sold it for $1.5 billion in just three years! Last year, Cadbury received a large offer from two consortiums of investors including Blackstone, Lion Capital, Bain Capital, TGP and Thomas Lee. However, the company rejected all of these offers in favor of a spin-off.

Spin-offs themselves are worth watching because they create opportunity through inherent neglect. Studies have shown that spin-offs tend to significantly outperform the S&P 500 in the first two years by as much as 31% in one study. It is worth noting, however, that the optimal time to buy a spin-off is seen as six months after it takes place. Price performance suggests that this is typically an optimal period to buy to realize the maximum price appreciation over the next 12 to 18 months.

Cadbury has yet to approve the spin-off and provide additional financial details, but this is definitely a situation that investors should watch. There is clearly a lot of interest in the U.S. beverages division while the spin-off process itself is known for generating value for shareholders. Combined, these factors make CSG a stock worth watching over the next year or so as this spin-off comes to fruition!

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Tecumseh Products Company (NDAQ: TECUA) may provide relief from the heat for its customers, but its shares are quickly heating up. Stock in the hermetic compressor manufacturer rose nearly 15 percent in early trading after a large shareholder suggested that the company put itself up for sale in a Schedule 13D/A filing with the SEC. The move comes after some tension between the two parties and is seen as a logical next step. So, should you buy some TECUA while it’s in play?

The Herrick Foundation owns approximately 17.5% of Tecumseh in the form of a charitable trust. The Foundation’s relationship with the company turned sour last March when it sued the company for governance disputes. The two reached a settlement a month later that involved the resignation of some board members and the installation of many new ones. Among them, a representative from the Herrick Foundation that the company must continue to nominate during the term of the settlement agreement.

The strained relationship between the Herrick Foundation and Tecumseh prompted the Foundation to explore ways to sell its stake. Given the size, there is not an easy way to do this without a private placement or substantial losses. As a result, the Foundation sent a letter to the board demanding that it form a committee to explore the possible sale of the company to strategic and/or financial buyers. Meanwhile, the Foundation would approach potential buyers regarding their interest in purchasing the Foundation’s shares or the company as a whole.

The only roadblocks standing in the way of a potential deal are poison pills, a Class A Protective Provision, and a few other anti-takeover provisions. However, the large ownership stake in the company and sympathetic directors on the board make this deal one that is likely to see the light of day. Combined, these factors make TECUA a stock worth watching closely as this situation progresses!

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Countrywide Financial Corp (NYSE: CFC) shares are down significantly on reports it is being investigated by the Federal Bureau of Investigation for securities fraud, specifically whether it didn’t disclose its true financial condition and the poor quality of its mortgage loans in required regulatory filings. This new FBI investigation is in addition to SEC and Congressional probes already looking into the company.

The headline-making FBI probe led to speculation that Bank of America Corp (NYSE: BAC) might try to significantly renegotiate or even abandon its purchase of Countrywide. In January, Bank of America agreed to purchase the mortgage lender for $4 billion.

Despite such speculation, Bank of America spokesperson Scott Silvestri said today that “the transaction is on track.”

California-based Countrywide was the largest U.S. mortgage lender and particularly vulnerable to the declining real estate market that has led to record defaults and decreased availability of investor capital. Its upcoming operating report for the month of February, expected within the next few days, will reveal how badly Countrywide was further hit by last month’s new round of capital market problems.

Before the news of the FBI probe, Countrywide shares were trading almost 25% below Bank of America’s agreed purchase price, showing that investors lacked confidence in the deal. The proposed agreement gives Countrywide shareholders 0.1822 Bank of America shares for each Countrywide share, which as of Friday’s closing price for Bank of America stock valued a Countrywide share at about $6.70. Countrywide’s actual closing price Friday was $5.07.

Though the gap between Countrywide’s trading price and the purchase price may attract some short-term traders, the huge uncertainties created by this new FBI investigation mean the smart money is staying clear of Countrywide for now.

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Select Comfort Corp. (NDAQ: SCSS) may help its customers sleep well at night, but many of its shareholders are definitely losing sleep on with stock’s performance. The mattress-maker saw its shares drop over eight percent today after one of its largest shareholders sent a letter to the board demanding changes in a Schedule 13D filing with the SEC. So, will the company respond with shares trading at their 52-week low?

The Clinton Group, which owns a 5.07% stake in Select Comfort, requested a meeting with the board to address its concerns about missteps they believe the company has taken that have resulted in a deterioration of performance and that has obscured its strong growth prospects. The activist hedge fund joins many other dissident shareholders created as a result of a shocking 80% decline in market value over the past 52 weeks.

The Clinton Group believes that the board and management should immediately implement several initiatives designed to give Select Comfort strategic direction and restore its operational performance:

1. Revise marketing strategy to refocus on direct marketing.
2. Disband the “Quality of Life Advisory Board” as a wasteful use of company resources.
3. Review its store portfolio to eliminate underperforming stores.
4. Immediately cease all new store openings and spending on unnecessary capital expenditures until sales results improve.
5. Eliminate stores in regions where the Company does not have the critical mass to justify its advertising and the overhead for that region, and then eliminate the excess regional and corporate overhead.
6. Freeze spending on the SAP system installation until it is evaluated by an independent consultant.
7. Consider subleasing or disposing of the costly new corporate headquarters and conduct a study on the future needs of the Company in light of its anticipated growth.
8. Revise new Chief Executive Officer performance metrics to earn 2008 base salary to align with shareholders interests.
9. Consider outsourcing its call center operations.

“The dramatic declines cannot be blamed on a difficult macroeconomic environment alone, as the declines in the broader consumer discretionary indices and overall market declines have not been nearly as severe,” said Clinton Group Vice Chairman Jerry W. Levin in a letter to the board. “Even in a difficult market, we believe that the Company should be able to capture market share if it effectively communicates the value of its mattress products with respect to comfort, sleep quality, and price.”

In the end, Select Comfort is a solid company trading at just 6x earnings because of investor concerns about its future. Luckily, simple solutions are available that can be implemented in order to alleviate these concerns and restore investor confidence. The Clinton Group has clearly outlined these steps and it will be interesting to see whether or not the company embraces them. Combined, these factors make SCSS a stock worth watching!

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Kraft Foods Inc. (NYSE: KFT) is one of Warren Buffett’s most recent investments and shares are now trading just off their 52-week lows. This means that the average investor now has the opportunity to invest alongside the Oracle of Omaha at an even better price. Shares in the packaged food company rose substantially after its spin-off from parent Altria Group (NYSE: MO), but declined in recent months amid a weak U.S. economy. So, is KFT a buy at these levels or could it go lower?

Few can dispute the fact that Kraft is cheap at these levels- after all, if the world’s richest man invests you know it’s a good deal! The stock currently trades at just 19x earnings with an even lower forward multiple of just over 14x earnings. Perhaps more intriguing is fact that the company is trading at a 40% discount to enterprise value with strong free cash flows of $1.75 billion and a healthy debt-to-equity ratio of just 0.77x. It is clear that KFT is attractive on a fundamental standpoint, which is likely why Buffett is interested.

Kraft’s three year turnaround plan is also starting to pay dividends as the company continues to introduce new products while cutting overhead costs. The new product offerings include Bagel-fuls (bagels with cream cheese inside), Nilla Cakesters (a cake version of the Nilla Wafers), and a complete overhaul of the company’s salad-dressing products. Meanwhile, the company also announced that it has cut seven hundred jobs recently as a part of its plan to lower costs over the next year.

The key barrier to overcome, however, continues to be sagging profit margins. Higher commodity costs have eaten into the Kraft’s profit margins as it is unable to pass on the costs to customers amid weak consumer spending. The company insists that it will be able to increase prices in 2008, but many analysts remain skeptical that consumer spending will improve in such short order. It is worth noting, however, that Kraft continues to have one of the highest margins in the industry, so things aren’t as bad as they seem.

In the end, value investors like Warren Buffett like this stock because of its cheap valuation which can be attributed to temporary problems in the U.S. economy. Once prices can be raised, profit margins will improve, earnings per share will increase, the multiples will increase, and the share price will go up substantially. This process could take a few years to happen, but investors like Buffett prefer to buy at the bottom. This makes KFT a stock worth watching!

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McDonald’s Corporation (NYSE: MCD) posted strong results alongside Wal-Mart Stores (NYSE: WMT) as a growing number of consumers seek out value in today’s weak economy. The world’s most popular fast food chain saw a 12 percent rise in same-store sales, driven in the U.S. by strong performance from its breakfast, premium coffees and “everyday value” offerings. Meanwhile, overseas growth was driven by a weaker U.S. dollar that kept prices cheap. So, is MCD a buy?

Chief Executive Officer Jim Skinner commented, “McDonald’s consolidated performance continues to reflect our enduring profitable growth with comparable sales up 6.8% for the year – one of our strongest increases since the initiation of our Plan to Win. We continue to drive our business by linking consumer insights to our strategies of convenience, branded affordability and innovative menu offerings.”

Many investors were worried about McDonald’s after weak consumer spending and higher food costs hit its sales in the fourth quarter. You see, fast food chains are not able to pass on high food costs to consumers without losing sales in today’s weak consumer spending environment. However, McDonald’s was able to keep prices low with its efficient food distribution system while a weak dollar helped spur sales outside of the United States.

It is also important to realize that these numbers aren’t all they seem. McDonald’s earnings did receive a 6.7 percent boost from the decline in the U.S. dollar while 4 percent of its same-store sales increase can be attributed to the extra day from the leap year. However, the results are definitely an improvement from its fourth quarter numbers and should help restore investor confidence in the company.

McDonald’s also reaffirmed its commitment to maximizing shareholder value. It seems that the fast food chain has learned its lesson after its encounter with activist Bill Ackman and vowed to continue its target $15 billion to $17 billion cash return to shareholders between 2007 and 2009. McDonald’s also announced that it would begin a quarterly dividend beginning in 2008 starting at $0.375 per share. This is great news for shareholders as a combination of buybacks and dividends should help keep the company’s multiple near or above that of its peers.

In the end, McDonald’s has proven itself to be a strong company in a weak economy thanks to its value pricing and international exposure. Investors looking for a familiar name but international exposure may want to think about adding MCD to their portfolio. Combined, these factors make MCD a stock that is definitely worth watching over the next year!

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