Across the board, automakers announced that U.S. sales dropped severely in the month of March in the face of record high gas prices and concerns about economic stability.

General Motors Corp. (NYSE: GM) had sales drop by a staggering 19%, while both Toyota Motor Corp. (NYSE: TM) and Ford Motor Co. (NYSE: F) had sales drop more than 10% respectively. Not to be left-out, Honda Motor Co. (NYSE: HMC) and Nissan Motor Co. also experiences declines, though much less severe.

This is certainly not totally unexpected – this is the 10th sales drop out of the last 12 month for U.S. auto sales, but what makes it surprising is just how large the drop was across even foreign carmakers.

Ford Vice President Jim Farley said, “I'd like to be able to tell you the worst is behind us but I can't really say that. The second quarter may be the worst sales period of the year.”

Though U.S. automakers weren’t alone in experiencing the sales decline, their share of the overall U.S. market is still decreasing compared to foreign makers. It is now estimated that U.S. companies have 48.4% of the U.S. market compared to 44.5% of the market for Asian companies. This balance will most likely continue to shift as more cars were sold than trucks last month for the first time since May last year – foreign companies tend to do much better in car sales than truck sales. This reversal reflects a renewed customer focus on fuel efficiency in the face of rising gas prices. Not only is this bad news for U.S. market share, it is also very bad news for profitability because trucks and SUVs are drivers of domestic carmakers’ profits.

“Market demand is more sedan-weighted, more to small cars,” because high gas prices force “people [to] rethink their vehicle choice and consider more efficient types Nissan North American VP Al Castignetti said.

Despite this positive trend for Asian manufacturers that tend to have more fuel efficient models, Toyota, Honda and Nissan are still experiencing sales declines. “We’re not immune to economic cycles and downturns in the automotive industry,” said Toyota’s brand division head Robert Carter. “We hope to sustain sales somewhere around the same level as last year.”

In this economy, when the world’s best positioned car manufacturer can only hope to sustain sales, investors should be wary of automaker stocks.

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Best Buy (NYSE: BBY) reported better-than-expected earnings today and helped boost the larger retail sector. The electronics retailer announced its 10th consecutive year of double-digit revenue growth with an 11 percent despite a 3.4% decline in profits. The numbers beat analyst estimates, sending BBY shares higher, and boosted confidence in consumer spending going forward.

Best Buy accomplished its revenue growth by opening 137 new stores last year while increasing annual comparable store sales by 2.9 percent. Profit margins were boosted by a 25 percent growth in online revenue along with more efficient promotional costs, but these gains were more than offset by higher revenue growth from lower-margin products. These products include notebook computers, gaming consoles and international stores.

Many investors were concerned that consumer spending would slowdown given the lack of credit and decline in the housing markets. However, Best Buy's results a shift to low-margin "staple electronics" rather than a larger slowdown. This trend towards in-line revenues on tighter profit margins is a clear theme within the retail sector but has many bullish on the retail sector since it's not so much a slowdown than a temporary shift.

Best Buy also took action to unlock shareholder value by buying back approximately 16 percent of its outstanding shares in an accelerated share repurchase program. The electronics retailer has a remaining authorization of $2.5 billion for the repurchase of its stock with no stated expiration date. Best Buy also paid a dividend of $0.30 per share, which was a 30 percent increase compared to the prior year's fourth quarter.

The current economic decline has many investors clamoring for these types of actions. This is especially true given the cheap multiples in sectors like retail. Share repurchasing helps reduce the number of outstanding shares, which increases earnings-per-share and tends to make price corrections more rapid. This is good news for shareholders as it could help the stock price recover much more quickly when the economy turns.

Interestingly, Best Buy also announced that it holds troubled auction-rate securities. These are AAA/Aaa-rated bonds collateralized by student loans guaranteed 95 percent to 100 percent by the U.S. government. Unfortunately, the market for these securities collapsed in recent times, which made them virtually impossible to sell on the open market without taking a substantial loss.

Normally, companies are required to write-down the value of these securities to this new value, but Best Buy reclassified the investments as non-core, which allowed them to forego that requirement. The reality is that these auction-rate securities haven't really declined in value, but Best Buy may be required to hold onto them for longer than initially expected since they can't sell in an illiquid market.

In the end, this is good news for Best Buy as well as the retail sector and economy. Consumer spending is not slowing as much as many expected and things should begin to improve this coming year. Combined, these factors make BBY a stock worth watching closely over the next few months.

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Packeteer, Inc. (NDAQ: PKTR) shareholders aren't quite ready to pack their bags as the stock soared past a $5.50/share buyout offer. The networking software company rejected the $5.50/share offer from Elliott Associates and installed a poison pill in the form of a shareholder rights plan. The move comes after Elliott took its bid hostile by making a tender offer directly to shareholders in an attempt to gain majority control.

The Packeteer board wasn't about to give up that easily. The company adopted a shareholder rights plan with a one year duration whereby any person or group that acquires 15% or more of Packeteer common stock without prior board approval would face a triggering event that would cause significant dilution in their voting power via a rights offering to shareholders. This would make it prohibitively expensive to takeover without approval.

The Packeteer board also confirmed that it was exploring strategic alternatives to maximize value for shareholders, which could include a business combination with third parties or with Elliott, remaining independent, or other strategic or financial alternatives that could deliver higher shareholder value than the current Elliott tender offer. This statement is what caused the run-up in shares seen on Wednesday.

Packeteer also noted in its Schedule 14D-9 filing that it has received indications of interest from, and conducted discussions with, at least five other potential strategic acquirors. One of these companies even submitted a non-binding proposal for an all cash acquisition with a valuation higher than both the Elliott offer and other offers on the table. Furthermore, at least three others also submitted non-binding documents outlining possible transactions.

Even if a sale transaction doesn't take place, the board believes that the company's stand-alone operations will produce significantly greater value for shareholders than Elliott's offer. After all, these strategic and financial buyers are interested in the company because of its products, technologies, and ability to generate revenues and earnings. Traditionally, the company has not made estimates, but it released some bullish ones in its proxy.

Packeteer said in its proxy filing that it anticipates earnings per share to be $0.39 in fiscal 2008. The price-earnings multiple on the March 4th share price (the day prior to the takeover proposal) was 20.3x. Given that this was based on the publicly available estimate of $0.19, the new $0.39 number yields a theoretical value of $7.93 per share. Clearly, the expected benefit of the company's 2008 operating plan has not been fully realized in the offer or current stock price.

In the end, Wednesday was a great day for Packeteer shareholders. The company guided earnings much higher than anyone expected while it also revealed that up to six parties were interested in launching a takeover bid for the company. One offer is already on the table while at least one offer is already substantially higher and in the advanced stages of negotiation. Combined, these factors make PKTR a stock worth watching!

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TravelCenters of America's (AMEX: TA) stock is running out of fuel and some investors are calling for the heads of those responsible. The company posted a higher-than-expected loss of $4.68 per share compared to street expectations of a $1.13 loss. Management blamed the increase on tough economic conditions, but the real reason can be traced back through the company's history.

TravelCenters' problems began when it was acquired by Hospitality Properties Trust back in September 2007. Just a few months later, Hospitality Trust spun-off the operating division of TravelCenters while keeping the real estate to lease back to the new entity. Many investors didn't see it, but the problems had already begun. The landlord became the owner of the new entity, which should raise the conflict of interest flag.

According to TravelCenters' S-1/A filing: "We, [TravelCenters], were formed for the benefit of Hospitality Trust and not for our own benefit. Our formation allows Hospitality Trust to acquire and retain ownership of 146 travel centers without adverse tax consequences to Hospitality Trust. Because we were formed to benefit Hospitality Trust, some of our contractual relationships and the terms of our initial business operations may provide more benefits to Hospitality Trust than to us."

This shocking conflict of interest only became increasingly apparent as time progressed. TravelCenters stock began trading at $30 per share and quickly rose to a higher of around $45 before it began its rapid decent. The powerful combination of costly rents, rising expenses, and a failure to build sales of the higher-margin products and services sparked a landslide that culminated with Tuesday's hugely-disappointing earnings announcement, after which TA shares plummeted an additional 42% (in just one day) and closed at just $3.50.

So, what was behind the huge earnings miss? Well, management began taking action to diversify its revenues and turn itself around, and TA acquired a significant competitor, PETRO - but they did it at the wrong time. Part of the process forced them to integrate operations and re-train employees, which resulted in a substantial one-time expenses and increases in labor costs. These cost increases came at a time when revenues were also sharply lower thanks to higher oil prices and lower trucking traffic. Combined, these factors led to a huge loss during the most recent quarter that caught many investors off-guard.

TA's failure to diversity its revenues past low-margin fuel and into high-margin convenience store products has resulted in substantial pressure on its profit margins. Convenience store competitors like The Pantry (NDAQ: PTRY) and Casey's General Stores (NDAQ: CASY) have clearly shown that earnings can be increased with higher-margin convenience stores items if they are upsold for fuel customers. TA's management has yet to make a signficant move to upsell to its customers, which is yet another issue that led to the steady erosion in its financials.

In the end, perhaps the new CEO without relevant experience in trucking and retail along with a dedication to supporting Hospitality Trust should never have been trusted in the first place. Remember, TA was “formed to benefit Hospitality Trust.” It just goes to show how important it is to read the fine print before investing!

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Microsoft Corporation’s (NDAQ: MSFT) pursuit of Yahoo Inc. (NDAQ: YHOO) continues to generate headlines even as new material developments haven’t arisen in the last few weeks.

Today, numerous sources are claiming that despite speculation Microsoft has no plans to increase its $44.6 billion bid for Yahoo – even as Yahoo has attempted to make the case that it is much more valuable.

Microsoft seems to be counting on Yahoo’s lackluster investor presentations combined with a slowing economy to make its offer seem not only fair but unmatchable. Insiders at Microsoft have been quoted saying that they are the only game in town right now so why raise the bid when they are only bidding against themselves. In other words, despite Yahoo’s claims that its businesses are worth more than $44.6 billion, no other suitors have made an equal, yet alone higher, offer, so why should Microsoft increase its bid when shareholders seem interested in a deal?

Though both Time Warner Inc. (NYSE: TWX) and News Corp. (NYSE: NWS) have both been discussed as possible alternatives to Microsoft, not necessarily as purchasers of Yahoo but rather as strategic partners, nothing has come of such talk. In reality, neither company has the resources or desire to match the short-term value of Microsoft’s bid. Instead, the companies were used to try and cause an increase in the price of the existing Microsoft bid.

A legitimate issue to consider in the structure of Microsoft’s bid is that because it is a cash-and-stock offer, the value of the bid is susceptible to a slowing economy or bearish stock market. In fact, since the bid was announced two months ago, the real value of the deal has slipped from $44.6 billion to only about $42 billion. This decline is due to the decline in Microsoft share price.

Unless something significant changes, holding Yahoo shares in the hope that Microsoft will increase its bid or that a rival bidder will emerge is not a good bet.

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National City Corporation (NYSE: NCC) announced Tuesday morning that it is reviewing a range of "strategic alternatives", which is usually street-code for considering a sale of the company. The company offered no additional details, but there has been some speculation that advanced negotiations are already underway. However, large losses sustained in its mortgage banking business may prove to be a sticking point.

Wells Fargo (NYSE: WFC) and Key Corporation are the two companies reportedly in talks with the troubled mortgage banker. However, sources close to the situation say that a deal is unlikely until the buyers become more comfortable with the bank's residential real estate portfolio. The big problem is finding a buyer willing to pay a fair price without months of due diligence.

National City is also looking at other alternatives, including a sale of its asset management business and/or a sale of its stake in Visa. The company already sold a third of its stake in Visa for $450 million, which means the remainder could be worth another $900 million or more. Meanwhile, its asset management business is still doing well and would likely fetch a decent multiple.

National City is under pressure to come up with some cash after experiencing some heavy losses from their residential mortgage portfolio. Analysts have warned that its remaining $6 billion in risky loans may cause a problem if the company does not either raise additional capital or sell the company. The struggling geographic markets that it operates in will also mean a prolonged struggle if nothing is done.

The troubled mortgage banker already sold its subprime origination platform, First Franklin Mortgage, to investment bank Merrill Lynch at the beginning of the year for $1.3 billion. This proved to be a move in the right direction as Merrill Lynch was forced to close up shop just months after making the huge purchase. However, $6 billion in loans were left behind and are still held by National City.

In the end, National City saw losses of over $300 million last quarter and may see the same this quarter if changes aren't made. Many analysts are convinced that the company needs to take major action to raise some cash or it could face a prolonged downward spiral. Whether or not the company can successfully raise cash or sell itself remains to be seen, but this is definitely a story worth following over the next few months.

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CNET Networks (NDAQ: CNET) may have a valuable portfolio of domain names, but many investors just aren't seeing the value. Shares in the company have been trending down for the past three years and investors are ready for change. Recently, activist shareholders put pressure on the company to stop the destruction of shareholder value by making a series of fundamental strategic and operational changes. The question is: Will these changes work?

CNET's shareholder list now reads like a "who's who" of activist hedge funds, including JANA Partners and Sandell Asset Management. These activists released a whitepaper today detailing their disappointment in the company and recommending changes to solve the problems. Altogether, the group controls approximately 14.9 percent of the voting power in the stock, which means they have a significant say.

The whitepaper beings by pointing out the destruction of shareholder value. CNET shares hav declined (21)%, (52)% and (25)% in the one, two and three year periods ended March 28th 2008. This compares to (1)%, 6% and 39% returns for its stated benchmark peer index. Meanwhile, the company has also consistently underperformed numerous peers in profitability and growth, ranking last among these peers in key metrics.

The activist investors then blasted new plans by existing management to reverse coarse and begin creating shareholder value. JANA Partners also rejected CNET's offer of a single board seat today, vowing to continue its proxy battle to gain control of the board. The activists believe that current management has failed to act in the past and lacks the experience and expertise to stop value destruction.

So, what is the new plan for CNET? The activist shareholders proposed that CNET undergo a transition to strengthen its core assets and transition from "Web 1.0" to the modern internet. These efforts would include:

1. Improving CNET's Monetization Infrastructure - The changes to this infrastructure would include improving ad unit optimization and inventory utilization, enhancing the user experience, increasing advertiser ROI, improving navigation, and acquiring additional traffic.
   
   
2. Building a Vertical Ad Network - It is common for large companies like Google, Yahoo, and AOL to create vertical ad networks by syndicating out their sales and technology infrastructure to third party websites. This generates significant increased revenue by allowing a sales force to sell inventory on non-owned partner vertical sites.
   
   
3. Using a Third Party Ad Network to Monetize Unsold Inventory - Revenues and profitability can be significantly enhanced by allowing a third party to monetize unsold or undermonetized inventory. The company has rejected such ideas in the past and only recently agreed to explore it.
   
   
4. Reaccelerating Growth Through Intent-Driven Media Techniques - Internet users today are increasingly intent-driven, meaning they are driven to websites through search engines, social media and web reference links rather than seeking out specific brands. Therefore, syndication and SEO should be areas of focus.
   
   
5. Integration of Social Media and Enhanced Content - The move from "Web 1.0" to "Web 2.0" involves installing social media enhancements to boost growth and enhance the user experience. Social media relies on real user identities, widgets and very sophisticated communications platforms to drive relevant valuable content.
   
   
6. Improve CNET's Technology Platform for Publishing - An improved platform for publishing and managing content could reduce costs and lift efficiency by enabling editors to easily update content and automatically generate related information. More, other improvements could be made to improve SEO.
   
   
7. Bring CNET's Cost Structure In-Line with Peers - CNET is clearly under-earning its customer base when you look at peer revenue per average monthly unique user. And despite having greater scale, the company's margins are still well below that of their peers. Changes should be made to reduce costs and increase revenues.
   

CNET's response to these ideas has been rather negative. The board adopted a poison pill in the form of a shareholder rights agreement as well as several severance packages. Meanwhile, the company offered a meager one board seat to JANA Partners if they dropped the proxy contest. Now investors just have to wait and see if shareholders are more open to the idea of change.

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Lehman Brothers (NYSE: LEH) caused some commotion on the street Monday after issuing $4 billion in preferred stock. The move was intended to quench rumors of a capital shortage, but instead confirmed to many that the bank is facing problems. Meanwhile, existing shareholders aren't too happy about having their stakes diluted by up to five percent. The stock jumped 10 percent this morning, however, after investors digested the news overnight. So, what is the real story?

Short interest in Lehman Brothers has increased five-fold since early 2007 as shares fell more than 40 percent. These short sellers bet that the stock will decline by borrowing and selling shares with the hope that the stock price falls before the borrowed shares have to be purchased and replaced. So far, these investors have made money as fear continues to grip the market and force the financial sector downwards.

Lehman Brothers has vehemently denied rumors of a capital crunch, saying that it has $31 billion in liquid assets along with $65 billion in other assets that it could easily borrow against. However, investors are still a little leary given the rapid demise of rival Bear Stearns (NYSE: BSC) that came as a result of similar rumors. More, Lehman Brothers in many ways has a similar risk profile to Bear Stearns.

Lehman Brothers currently holds $31.8 billion in residential mortgage loans and $13.5 billion in Alt-A loans. So far, the firm has been forced to write down this portfolio by more than $3 billion. However, Lehman insists that the remainder of this portfolio is well-hedged and and future losses will be offset by gains in other areas.

The greater concern is its $31 billion commercial real estate portfolio that continues to face pressure. Many commercial real estate projects, like its Archstone-Smith Trust investment, are falling through amid the poor economic climate. Fewer corporations are expanding while more are laying off significant portions of their workforce. The result is fewer tenants and lower rental prices as a result of consistent supply.

The move upward today comes after foreign markets rallied on the news. This likely spooked short-sellers who then took action to repurchase their shares before the stock rallied. These repurchases combined with existing demand is likely what sent shares soaring higher. How much of the demand for shares was actually driven by confidence as opposed to shorts covering remains to be seen. 

In the end, Lehman Brothers has some significant exposure remaining that could put the firm at risk. However, it looks like its $31 billion in liquid assets should be enough to cover at least for the near term. The fact that it was able to easily raise $4 billion also illustrates confidence by Wall Street. The problem is that it came at the expense of existing shareholders and further spooked the market in general as things still aren't getting better.

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New research data shows that online advertising is beginning to run out of steam at what could become a turning point for the industry. Many analysts have been concerned that such trends would continue as the industry began to mature, but the decline in consumer spending could expedite the process as fewer consumers click on ads while more publishers are looking to fill ad inventory. The big question is whether or not this trend will be permanent.

Citigroup's Mark Mahaney is one such concerned analyst and reduced his price target on Google Inc. (NDAQ: GOOG) this morning amid concern that there is deterioration on paid click growth. The reason? ComScore, which measures online trends, released its January 2008 qSearch paid click report that showed a 7 percent sequential decline versus December 2007 and a flat annual growth in paid clicks for Google. More, the number of paid clicks per Google search query declined by 8 percent. This is clearly bad news for intermediaries like Google that rely on transaction volume to drive revenues.

Meanwhile, a recent report put out by the Newspaper Association of America showed that publishers are being hit equally hard - especially newspapers advertising online. The report showed that such advertising had slowed down from a 30 percent growth rate during the past three years to just 18 percent now. Unfortunately, the move downward comes at a critical time for newspapers that are under pressure to increase their online revenues as subscription and print advertising numbers decline.

The trend is a disturbing one that could last some time. Consumers that have no money are less likely to click on advertisers and spend money. This means that advertisers are going to pay less per click or banner impression. Given that the supply of publishers is unchanged, this means that there is a lot of inventory with few buyers. Unfortunately, this spells lower payouts for publishers like newspapers and less money for intermediaries like Google. It could end when the consumer situation recovers, but whether or not it will see the 30 percent a year remains to be seen.

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Ansys Inc. (NDAQ: ANSS) announced today that it agreed to buy Ansoft Corporation (NDAQ: ANST) for $832 million in the form of both cash and stock.

The deal will put both simulation-software companies under one roof while giving Ansys access to Ansoft’s valuable electronic-design automation software – software “used to simulate high-performance electronics designs found in mobile communication and internet devices, broadband networking components and systems, integrated circuits, printed circuit boards and electromechanical systems” according to the press release on the deal.

Under the terms, Ansoft shareholders get $16.25 in cash and 0.431882 share of Ansys stock for each share of Ansoft they currently own – which values Ansoft at a 39% premium to Friday’s closing price.

Ansys will fund the deal by issuing 11.1 million shares of new stock and using $346 million of a credit line with Bank of America (NYSE: BAC). In other words, this acquisition is funded by diluting current shareholders and debt.

Ansys President and CEO James E. Cashman III said, "Both companies have a strong commitment to their customers and employees, and share a passion for the development of innovative products and services and a history of world-class execution. This combination will further strengthen these values and will allow us to better serve our customers by accelerating the delivery of comprehensive, customer-driven engineering simulation solutions and by enabling us to provide high quality support throughout the world.”

Though the deal may better serve customers, in the short-term Ansys expects the deal will only “modestly” help earnings per share but raise revenues to nearly $500 million annually. Only time will tell how Ansys balance the advantages of this acquisition with the dilution and debt that are making it possible.

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