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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