Novell, Inc. (NDAQ: NOVL) shares moved sharply higher after the company reported better-than-expected earnings in its latest 8-K filing with the sEC. Shareholders were surprised by a swing to profitability as well as strong growth in its Linux business. Meanwhile, many are looking forward to seeing how the company will integrate its new acquisitions as potential upsell opportunities to expand revenues even further. So, what does the future hold for this once-struggling technology company?

Novell reported revenues of $231 million on net income of $8 million profit in the first quarter. This compares to revenues of $218 million on a net loss of $21 million during the same time period last year. The swing to profitability caught many investors by surprise as the company was boosted by strong performance from its Linux platform business, which grew 65 percent year-over-year. However, the majority of its revenues were still derived fromits workgroup products, which grew a modest 1 percent year-over-year.

“We are very pleased with our results this quarter. We delivered product revenue growth across all business units and continued expense control this quarter,” said Ron Hovsepian, President and CEO of Novell. “These results are indicative that our strategic initiatives are yielding tangible results and that we are on the right path to achieve long-term, sustainable profitability.”

Novell’s partnership with Microsoft is one of the main drivers for growth in its Linux platforms business. Although they are only into the second year of the deal, Novell has already earned $141 million from the arrangement - or 59 percent of what the five-year agreement stipulates. There is also a lot of opportunity for upselling inside of those relationships, which could prove to be even more of a boost in the future. And finally, Novell also sees opportunity with the launch of Microsoft’s new Windows Server 2008, which it sees as an opportunity to attack Microsoft’s installed base.

“Microsoft is managing the outward competition, but they are also managing their older installed base and the different versions that they are on,” Hovespian said. “We see that as opportunity for our company to attack that installed base. I’m sure the competitive fires will remain strong between both companies.”

The majority of today’s stock price movement, however, likely comes from Novell’s strong guidance. The company upped its guidance for 2008 with revenues now slated to be between $940-970 million compared to prior estimates of $920-945 million. Meanwhile, the company expects operating margins to be between 7 and 9 percent excluding all acquisition-related intangible asset amortization. This is far higher than what many analysts were expecting and may even be raised in the future if the company continues to see stronger growth on the heels of its Linux platforms division.

In the end, this is all great news for shareholders as Novell continues to push forward. Shareholders are not only looking towards solid growth in its Linux business but also for the results of the firm’s acquisitions of virtualization management vendor PlateSpin and open source collaboration vendor SiteScrape earlier this month. It will be interesting to see how the company integrates these businesses as more potential upsell opportunities. Combined, these factors make NOVL a stock that is definitely worth watching!

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3Com Corp. (NASDAQ: COMS) is up almost 20% on reports that Bain Capital LLC and Huawei Technologies Co. plan to reapply for U.S. regulatory approval to buy the network-equipment maker.

The financial terms of the original deal probably won't change much - a $2 billion price, 85% stake for Bain and the remaining minority share of Huawei. The difference is Huawei would not have access to sensitive technologies that blocked the deal in the first place.

Last week, the deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition. As SECInvestor's earlier article said on the matter:

"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."

Though it seemed likely that Bain would be just as happy to leave the deal dead given the state of the economy and 3Com's rather weak business currently, instead the firm may look to capitalize on the regulatory hurdles in order to secure a lower purchase price. With 3Com's core business still a distant second to giant Cisco Systems (NASDAQ: CSCO), even a deal at a lower price is good news for 3Com shareholders.

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Dell Inc. (NDAQ: DELL) shares fell sharply today after the company announced disappointing results in it’s latest 8-K filing with the SEC. The computer-maker cited high-than-expected costs as the reason behind its earnings shortfall despite laying off 3,200 employees and taking other cost-cutting measures. Many shareholders are now questioning the company’s ability to execute upon its long awaited turnaround plan that is now facing another setback. So, is Dell a stock worth buying at these depressed levels or perhaps more of a short candidate than anything else?

Many investors are concerned about the chronic cost increases that Dell faces in the computer hardware business. During the fourth quarter, the company saw its revenues expand 10% while its operating income and net income both fell by 6%. This is a clear indication that profitability was waning due to either increased costs or lower selling prices. Gone are the days where Dell’s superior inventory management and online selling provided it with a competitive advantage. Now, even Dell faces lower selling prices across the board while its costs are going up due to expansion outside of pure Internet sales.

“While Dell continues to drive towards a world-class cost structure and competitiveness we have much work to do,” Mr. Dell said. “Resurgent growth puts us on a strong footing to improve our cost position, scale expenses and enhance productivity across our business. I am confident that from this base we can continue to drive improvements in profitability.”

The kicker was a short outlook where the company stated that it will “continue to incur costs as it realigns its business to improve growth and profitability” which may “adversely impact the company’s near-term performance”. Dell also hinted that it expects a slowdown in consumer demand as customers display more “conservative spending” as a result of the credit crunch. Combined, these comments are likely what sent shares down today as investors now know that they shouldn’t expect results to improve at all in the near-term.

The one bright spot in its future is sales growth seen in countries outside of the United States, which was up 16 percent and now account for nearly half of the company’s total revenues. Growth was particularly strongin BRIC (Brazil, Russia, India, China) countries where revenues grew 36 percent on a 50 percent increase in units. Meanwhile, Asia Pacific countries and Japan saw revenue growth of 28 percent while Americas International revenue grew 22 percent. Dell will likely continue to rely on strong growth abroad to offset what will obviously be lower sales in the US as consumer credit continues to be a problem.

In the end, this is another disappointing quarter for Dell shareholders. The company’s old paradigm no longer works in today’s world and we have yet to see if it can adapt and turn itself around. Overseas growth in emerging markets has done exceptionally well, but the company will need to reign in its costs before it can regain any trust. Regardless, it is a stock that is definitely worth watching over the next year or so as it attempts to maneuver a turnaround!

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A year ago coal was a dull market after a warm winter in 2005-2006 generated record inventories and sent coal prices plummeting. As a result, most coal stocks saw declines of 50 percent or more from late 2006 to early 2007 and few buyers could be found. However, the situation has now greatly changed as the ongoing tightening of supply and demand in the US coal market has caused coal prices (and stock prices) to skyrocket. So, what are the forces behind this move and where are the opportunities in this sector these days?

Spot prices for coal, which is the price of a ton of coal for immediate delivery, are trading at new highs while US coal supplies have tightened due to a series of new environmental laws and safety regulations. These new regulations were primarily targeted at the east coast and forced many smaller mining operations to shut down as they simply could not afford the cost of compliance. Meanwhile, larger players were forced to scale back their operations due to the increased cost of doing business. At the same time, coal demand surged as a result of demand abroad.

China is the source of most of this demand after it became a net importer of coal in 2007. The country is already the largest producer and consumer of coal, but is now seeing its consumption grow even more rapidly. In fact, the Chinese government even banned exports of coal in China to help keep costs down and ensure there was enough to go around. All of this demand from China is eating up the supply that was traditionally earmarked for Europe, which is forced to import the majority of its coal. Now, Europe is turning to the US in order to fill this need.

There have also been several recent events that have helped boost prices. First, heavy rains in South Africa have impacted their coal exports while the fourth-largest coal exporter in the world also stated that it would need to keep more of its own mined coal for domestic consumption. Secondly, Austrialia has also been suffering from heavy rains that has disrupted coal production for the largest exporter. And finally, Indonesia is expected to become the world’s largest coal producer, but no longer believes it will be able to supply as much as previously expected.

So, what stocks are worth watching to take advantage of these circumstances? One of the most successful coal stocks this year has been Patriot Coal (NYSE: PCX), which spun off from its parent Peabody (NYSE: BTU) in October. Since then, the stock is up a healthy 56.59% as a result of strength in the coal market and a compelling future development in the Appalachians where it has 446 million tons in reserves alone that represent some of the lowest sulfer (highest quality) coal in the market. Combined, its 9 million ton reserve base dwarfs that of competitors and are in strategic locations that enable them to easily export abroad and ship domestically.

Investors looking for a more diversified play on the entire sector may want to check out the Market Vectors-Coal ETF (NYSE: KOL) that offers a sort of “mutual fund” focused on just coal companies. The ETF’s top 14 holdings - or 70% of its portfolio -are all up and midstream producers that are marginal producers and should give good exposure to the sector. The only problem with the ETF is its stake in Huaneng Power (NYSE: HNP), which is a power-generating consumer of coal and not a producer.

Other coal stocks to watch include Consol Energy (NYSE: CNX), Peabody Energy (NYSE: BTU), Arch Coal (NYSE: ACI), Joy Global (NDAQ: JOYG), Bucyrus International (NDAQ: BUCY), Transalta (AMEX: TA), and James River Coal Company (NDAQ: JRCC). All of these companies should benefit from the rise in coal prices, but the extent of which depends on how many long-term contracts they can ink while prices are high. For now, many of them are struggling as they export cheap coal under old contracts. Regardless, these are all stocks that are definitely worth watching!

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EOG Resources, Inc. (NYSE: EOG) shares moved sharply higher today after the company announced it increased organic production growth estimates for 2009 and 2010 to 13 to 15 percent from the previously stated annual average of 10 percent. The oil company also disclosed information about four promising new crude oil and natural gas plays that could contribute to future reserve and production growth. And finally, it increased the potential reserve recovery from its Fort Worth Barnett Shale and Uinta Basin natural gas players. Combined, this is great news for shareholders as increased production schedules combined with record crude oil prices make for a profitable combination!

“By applying our expertise in horizontal drilling and completion techniques, EOG is positioned to replicate its success in the Fort Worth Basin Barnett Shale and North Dakota Bakken with several newly identified onshore North American plays that show substantial promise,” said Mark G. Papa, Chairman and Chief Executive Officer. “Although some of these discoveries are in the very early stages of delineation, they are expected to impact EOG’s reserves and production in the coming years.”

There are two key things worth noting in these recent statements. First, EOG Resources has developed better horizontal drilling and recover techniques that should allow it to achive higher per well reserve recoveries not only in Fort Worth but in future projects as well. Secondly, there are several remaining potential production increases that have not been considered for EOG’s production growth targets for 2009 and 2010. One in particular is a fourth horizontal well being drilled in northeastern British Columbia’s Horn River Basin where the company owns 140,000 net acres.

In the end, these production increases and potential production increases combined with increasing energy prices should not only enable EOG Resources to meet its future growth targets but surpass them by a substantial margin. Shares have rise over 20 percent today, adding billions to the company’s market cap, but there may be some room yet for even more upside when things settle down. Combined, these factors make EOG a stock worth watching closely!

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Unfortunately for Eli Lilly and Co. (NYSE: LLY), the FDA has rejected its application to sell a once-a-month injectable version of its schizophrenia drug Zyprexa.
 
The pharmaceutical company announced that the FDA issued a "not approval letter" for the drug, due to concerns about excessive sedation. This means that Lilly needs to perform additional studies before the drug can be reconsidered. This decision overrules a nonbinding recommendation issued earlier this month by FDA advisory panel that the drug should be approved despite concerns surrounding excessive sedation.

Given that the FDA usually follows the recommendation of its advisors, this news was surprising to the company and investors. Eli Lilly understandably said it was disappointed by the FDA's decision.

The drug is an alternative to Zyprexa, which is designed to ease hallucinations and other symptoms of schizophrenia. Zyprexa is already on the market in tablet form, but this new drug would allow administration only once a month.

A "not approval letter" usually means a drug is dead, but even if Eli Lilly can convince the FDA this hurdle will cause a significant delay to market.

This is all bad news for the Indianapolis-based company because though it has almost $19 billion in annual sales, this drug was predicted to add $500 million annually within two years. Long-term, a pharmaceutical company is only as good as its drug pipeline, and with Eli Lilly shares down only about 2% on the news the share price may not yet reflect the full consequences of this decision.

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MiddleBrook Pharmaceuticals, Inc. (NDAQ: MBRK) shares continue to surge today after the company said earlier this month that it hired Morgan Stanley to explore strategic alternatives, including a possible sale of the company. A recent FDA approval in January helped triple the company’s market value while an analyst commented that the company could look at a premium of 30 percent in case of a potential sale. Many other investors believe that the company could see an even higher premium given its novel Pulsys technology that would also be acquired. So, is MBRK a stock worth adding to your portfolio?

MiddleBrook received approval for its New Drug Application (NDA) from the U.S. Food and Drug Administration (FDA) for its one-daily Moxatag Tablets 775mg for the treatment of adults and pediatric patients 12 years and older with pharyngitis and/or tonsillitis secondary to Streptococcus pyogenes. According to the company, the approval was based on the company’s Phase 3 clinical study of more than 600 adults and pediatric patients 12 years and older in a double-blind, double-dummy, randomized, parallel-group, 50-center non-inferiority trial. News of this approval jumped shares from around $1.50 to over $3 the next day.

“We are extremely gratified to have received FDA approval of our MOXATAG NDA,” stated Edward Rudnic, Ph.D., president and CEO of MiddleBrook. “As the first and only once-daily amoxicillin therapy approved for marketing in the United States, we believe MOXATAG represents a major advance for patients and doctors seeking safe, effective, and convenient treatment options for strep throat. We now look forward to continuing our ongoing strategic evaluation process from a position of greater strength with this approval in hand.”

The approval brings to market the first major product that illustrates MiddleBrook’s PULSYS technology. This technology is essentially a change in the dosing paradigm that allows for more effective treatments that only have to be taken once daily. PULSYS exposes bacteria to rapid antibiotic pulses within the first hours of initial dosing, which appears to cripple bacteria’s natural defense mechanisms and eliminate them more efficiently and efectively than traditional infectious disease therapy regiments. MiddleBrook is one of the only high-tech companies focused on the antibiotics sector and seeks to redefine infectious disease therapy with this process. And it seems to be working in this latest drug release.

“Compared to four times daily penicillin, once-daily MOXATAG has shown comparable efficacy and tolerability in eradicating Group A streptococcal infections of the pharynx. However, the once-daily dosing of MOXATAG is a major advantage,” said lead study investigator Stan L. Block, M.D., professor of clinical pediatrics at the Universities of Louisville and Kentucky Medical Schools. “For the first time, physicians in the U.S. have the option of an FDA-approved once-daily amoxicillin therapy to treat their adolescent and adult patients with pharyngitis/tonsillitis. This should ensure better first- line therapy compliance with a penicillin class of antibiotic.”

In the end, all startup biopharmaceutical companies are risky ventures as they have no revenues and high R&D overhead. That said, MiddleBrook recently received an NDA and go-ahead from the FDA and was even able to raise an additional $21 million through a stock offering. This means that they should have a product to market within the next year while other investors are showing enough confidence to capitalize the company and keep it alive until it becomes profitable. However, given the steep rise in recent days, we could see a pullback before any more substantial gains. Combined, these factors make MBRK a stock worth watching in 2008!

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Elan Corporation (NYSE: ELN) is a pharmaceutical turnaround story that may soon get even better. The pharmaceutical company had a brush with bankruptcy in 2002 and reported a wider-than-expected loss of $405 million for 2007. However, the company said it expects a sharp turnaround in 2008, forecasing revenue growth of over 30 percent and possibly exceed $1 billion, driven by sales of its flagship multiple sclerosis drug Tysabri. The company currently receives 50 percent of the revenues from the drug when sales exceed $700 million. Altogether this turnaround story already has shares trading near their 52-week high, but many investors believe that they could get much higher next year.

Elan is also considering spinning off its development and manufacturing division Elan Drug Technology (EDT), which could be worth up to $1.5 billion. The company said that EDT has been consistently profitable and an important source of financing for the firm, with EBITDA of $125.5 million on revenues of $295.5 million in 2007. Meanwhile, the remaining biopharmaceuticals division posted a loss of $155.9 million on revenue of $463.9 million. Management reportedly wants to saddle the technology unit with $1 billion of debt to unlock value in its remaining biopharmaceuticals business as it pushes into profitability with the help of Tysabri. This is a classic move that could pay big dividends.

So, how will these events impact shares? Well, Tsybri is a blockbuster drug but does face a small hurdle with its newly-disclosed risk of liver injury. This is common for many drugs and the company kept its sales forecast, but it is a concern that it worth noting. Meanwhile, spin offs are well known for unlocking value in situations like this one. Now that the biopharmaceutical division won’t need additional financing through EDT, the move makes perfect sense to unlock value through debt reduction. Additionally, spin offs in general tend to outperform the overall market during their first two years for a variety of reasons.

In the end, this is all great news for shareholders. Elan has a blockbuster drug on its hands with revenues that could exceed $1 billion next year while it is also taking action to unlock value through a spin off. It not not too common to find a company with such savvy to act so quickly to unlock shareholder value. Shares may be trading near their 52-week high now, but they could definitely extend much higher over the next year. This makes ELN a stock that is definitely worth keeping an eye on in 2008!

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The Brink’s Company (NYSE: BCO) shares rose 1.4 percent today after the security company announced that it would spin off its home security unit in order to appease a growing number of dissident shareholders. The news comes after enormous pressure from activist shareholders Pirate Capital and MMI Investments, both of whom planned proxy contests to overtake the board if changes were not implemented. The company has finally agreed with the activists after completing a review of its strategic options with the help of the Monitor Group and Morgan Stanley. The Brink’s Home Security unit is one of the largest and most successful residential alarm companies in North America and the spin-off should unlock substantial value for shareholders who have been struggling to realize value in their investment.

“Today’s announcement, which is the culmination of a comprehensive and thorough review of the strategic options available to the company, further demonstrates the board’s commitment to enhancing shareholder value,” said Michael T. Dan, chairman, president and chief executive officer of The Brink’s Company. “Both BHS and Brink’s, Inc. are market leaders that outperform their respective peers on almost every operating metric. As separate publicly traded entities, each company should benefit from enhanced management focus, more efficient capitalization and increased financial transparency. In addition, shareholders will have a more targeted investment opportunity, and incentives for management and employees will be more closely aligned with company performance and shareholder interests. Given these advantages, we are confident that this transaction will enable BHS and Brink’s, Inc. to more quickly realize the valuations they deserve. I commend the employees of both BHS and Brink’s, Inc. for their hard work and dedication in building these two great businesses. I am confident that both companies will continue to create value for their shareholders, employees and customers.”

The spin-off will convert Brink’s into two separate publicly traded companies:

1. The Brink’s Company includes the businesses of Brink’s Inc., the world’s premier provider of secure transportation and cash management services. The company has approximately 54,000 employees at operations in more than 50 countries, had 2007 revenues of approximately $2.7 billion and operating profit of $223.3 million.
2. BHS, which has approximately 3,600 employees, is one of the largest and most successful residential alarm companies in North America. In 2007, BHS had revenues of approximately $484 million and operating profits totaling $114.2 million. BHS operates in all 50 states, the D.C. and several markets in two western providences in Canada. BHS’s ability to provide an outstanding customer service experience as awarded by J.D. Power and Associates, has created a loyal customer base that includes approximately 1.2 million systems under monitoring contracts. Through its dedication to high quality customer service, BHS maintains one of the highest subscriber retention rates among major residential alarm companies.

Brink’s also reached an agreement with activist hedge fund MMI Investments whereby one of their nominees will be supported as a director at the 2008 annual meeting while another director of theirs will be nominated at BHS following the spin-off. In return, MMI has agreed to withdraw its request to nominate any directors at the next annual meeting. Combined, these events represent yet another victory under the belt of activists and should result in substantial value creation for shareholders that many estimate as high as 40% to 50% premium. These factors make BCO a stock that is definitely worth following over the next few months!

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Oracle Corp. (NASDAQ: ORCL) said today that the U.S. Department of Justice and Federal Trade Commission approved early termination of the Hart-Scott-Rodino review period for its acquisition of BEA Systems Inc (NASDAQ: BEAS). Early termination means the Justice Department completed the review in advance of the 30-day maximum period allowed under antitrust law.

BEA has a special meeting of its stockholders planned for April 4 in order to vote on the merger. Though getting U.S. regulatory approval clears a major hurdle, the transaction still requires BEA stockholder approval and European Union regulatory permission.

Oracle said it agreed to buy BEA for $19.375 per share in January after earlier offers from Oracle were spurned for being too low, such as last year's $17 per share offer that valued the company at $6.7 billion. The current offer is worth approximately $8.5 billion.

The real question is, will the deal actually add value for Oracle now that it will probably be completed? Oracle said it expects only expects BEA to add one to two cents per share to adjusted earnings in the first year after the deal closes. Oracle has been on a spending spree in the last few years with CEO Larry Ellison spending more than $25 billion buying competitors like PeopleSoft, Siebel Systems and Hyperion Solutions.

Despite these purchases, Oracle has seen mediocre performance, especially in the last twelve-months. Combine this with Ellison's continued divestment from the company - 1 million shares just last month - and Oracle is definitely a hold, not a buy, right now.

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Yahoo! Inc.’s (NDAQ: YHOO) recent attempts to convince shareholders that Microsoft Corporation’s (NDAQ: MSFT) bid significantly undervalues the company have yielded very little. However, some people (1, 2) are now beginning to question why they haven’t mentioned a big piece of the puzzle - Yahoo’s stake in Asia. Yahoo’s stake in Yahoo Japan and China’s Alibaba alone are valued at around $11 billion by most analysts. Meanwhile, many others peg the true value much higher given the enormous growth potential in these markets. The search company’s dominance in these markets is well ahead of Microsoft and Google Inc. (NDAQ: GOOG) and could be a good argument for a buyout price higher than $50 billion.

Yahoo’s stake in Alibaba, which stands at around 39 percent, paid huge dividends after being acquired for $1.7 billion in August of 2005. Since then, the company has IPO’d and dramatically grew in market value while also continuing to grow its revenues at a break-neck pace. Interestingly, Alibaba is also concerned about the Microsoft acquisition, saying that it has a “reputation of using monopolistic tactics”. Foreign control of large companies is also a politically sensitive issue for Beijing, which has forced many prospective buyers to cut their stakes or sipmly delay the application process indefinitely.

Yahoo’s stake in Alibaba combined with its 34% of Yahoo Japan represent strategic high-growth investments that are just now starting to pay dividends. The U.S. markets are beginning to slow in online advertising and these Asian markets may by the key to driving future growth. The search company’s substantial investment in this area may only be worth $11 billion now, but it could very well be worth much more in the future as growth picks up. Many are now calling for Yahoo to work these numbers along with their existing calculations in order to come up with a clearly derived $40 per share valuation that they can take to Microsoft and use to negotiate a higher price.

In the end, Yahoo will probably end up being acquired by Microsoft. Management has had many opportunities to turn around the company and it would take a substantial amount of time to reach the $50 billion valuation that Microsoft has offered to pay. So, it is now up to the board to convince shareholders that they deserve a higher price. Whether or not they can do this remains to be seen, but many are now saying that they should attempt to place a higher value on their Asian stakes. Combined, these factors make YHOO a stock worth watching over the next few months!

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Radyne Corporation (NDAQ: RADN) shares spiked yesterday after Monarch Activist Partners voiced their support for Discover Group in its attempt to gain control of two board seats, despite an announcement that the company was already exploring strategic alternatives. The activist hedge funds believe that the company’s management may have an inflated sense of value and may resist reasonable offers made by potential suitors. As a result, they want to appoint their own directors to oversee the process and ensure that the company respects the rights of shareholders. So, is this entire situation one worth watching?

Radyne announced earlier this month that they had retained Needham & Co. as their financial advisor to assist it in exploring strategic alternatives, including a possible sale of the company. The firm had previously assisted the company in evaluating inquires received from time to time from prospective suitors. The company has not yet set any time frame for the conclusion of this process, but many shareholders are hoping that it can be completed within the next 3 to 6 months given that the company is already “in talks with various parties”. Many believe that the offer must come in at a 40 to 50 percent premium in order for current management to even consider selling the company.

Here’s the most recent letter sent by Monarch:

Monarch Activist Partners (Monarch) strongly agrees with your recent announcement to explore strategic options. We hope this news marks the beginning of actions that are more conducive to the best interests of Radyne’s shareholders.

The purpose of this letter is to address the February 13, 2008 13D filing by the Discovery Group LLC, a beneficial owner of close to ten percent of the company. We urge the board to amicably resolve Discovery’s request and appoint the two nominees to the Board immediately. Despite the announcement to explore strategic options we believe management potentially has an inflated sense of value that can be delivered under their tutelage and may resist reasonable offers given the company’s current position and marketplace conditions. Most importantly, a costly and protracted proxy contest does nothing to benefit shareholders and only furthers the rift between management and the company’s most significant owners. If the strategic alternatives process is open and fair, the Board and shareholders can only gain by appointing Discovery’s nominees.

We hope you give this request your full consideration.

In the end, this is all great news for RADN shareholders who have been suffering with subpar returns for some time now. Since the company is already in talks, we can assume that there are many buyers that are interested in the firm. The real question is how high management expectations are set. If Discovery is able to install its own board members, then there is a high likelihood that we will see a sale. Otherwise, it will be interesting to see what kinds of offers come in and how management responds to them. Regardless, this is definitely a company that is worth watching during the next few months!

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Netflix, Inc. (NDAQ: NFLX) shares spiked more than ten percent today after the company raised its first quarter and full year outlook on the heels of interest income and the completion of its $100 million stock buyback program. The online movie rental company also boosted its subscriber targets despite increased competition from companies like Amazon.com, Inc. (NDAQ: AMZN), Apple Inc. (NDAQ: AAPL) and its main competitor Blockbuster Inc. (NYSE: BBI). So, is this a trend that the company can maintain or a simple one-time blip amid a declining industry?

Netflix continues to benefit from a very favorable competitive landscape as well as improved cost-efficiencies across subscriber acquisition and overall marketing expenditures. This landscape will likely intensify in the comping year with digital downloads, but these offerings shouldn’t impact the DVD rental market for at least another few years. Netflix also announced a new popular program that allows subscribers unlimited streaming of about 6,000 movies and television episodes from their computer at no additional charge - a service that is quickly gaining popularity.

Netflix announced that the two main factors behind the raise in its net income was favorable interest income as well as its share buyback program. The movie rental company completed its share $100 million share buyback program announced earlier this year in record time. It repurchased 3.8 million shares of common stock at an average price of $25.96 per share, net of expenses. Meanwhile, the firm received higher interest income from its investments not related to the activities the company. It is unclear exactly how hight this impact was, but it will be interesting to see in their next quarterly report.

In the end, Netflix is proving that it has some staying power versus its steep competition. The guidance today not only showed increased operating efficiency in the fourth quarter (profits out-pacing revenues), but also a number of new subscribers that will help its bottom line. This company was a pioneer of online movie rentals and continues to impress investors as it works on new ways to compete against brand new competition from some of the world’s largest tech giants. Combined, these factors make NFLX a stock worth watching!

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Sybase, Inc. (NYSE: SY) shares rose marginally after the software-maker agreed to to boost its share buyback program as part of an agreement with one of its largest shareholders. The firm announced a $300 million self-tender offer at prices between $28 and $30 per share and will use its best efforts to complete approximately $82.9 million in additional open market repurchases prior to the completion of their 2009 annual meeting. The shareholder, Sandell Asset Management, will in turn drop its bid to takeover the board and limit its future acquisition of stock. So, should you ad some Sybase to your stock portfolio?

Sandell Asset Management had been concerned about the company’s large cash position. Sybase noted that it had about $735 million in worldwide cash, with between $225 million and $250 million of free cash. However, restricted cash and long-term investments reduce this amount to around $700 million in available cash balance. Looking ahead, the company estimated that it would need working capital in the United States of about $85 million and $115 million outside of the United States. Clearly, this is excess cash that could be leveraged elsewhere to deliver value for shareholders rather than sit in a bank account.

So, is this buyback a good deal for shareholders? The current agreement calls for purchasing at a significant premium to the current market price. The premium currently stands at around 9.5 percent and could rise higher, since the additional $82.9 million buyback is not tied to a specific price. There are also many other benefits brought on by a share buyback program given that it will reduce the number of outstanding shares by over 10 percent. Since it was financed out of cash on hand and not earnings, the reduction should boost the earnings per share. Some of this may be priced into the stock, but it is still a benefit worth mentioning.

Sybase is also quickly turning itself around after being left for dead not long ago. The software-maker announced record earnings in 2007 with a 17 percent increase in revenues and 26 percent increase in net income, which indicates that it has been improving its profit margins. Meanwhile, the company is continuing to take a larger portion of the database market from competitors like Sun Microsystems who had the opportunity to acquire the company on the cheap not long ago! In the end, these factors all make SY a stock worth watching closely over the next few months!

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Ford Motor Co. (NYSE: F) is expected to announce sometime next week that its Jaguar and Land Rover brands are being sold to India's Tata Motors Ltd. (NYSE: TTM), according to a British union.

Though Jaguar and Land Rover are both currently owned by Ford, the U.K.-based brands continue to be largely manufactured there. Unite union spokesperson Andrew Dodgshon, said in an interview today that a sale may happen as soon as March 5. Ford already said back in January that Tata was the preferred bidder for the units.

Ford, the world's third biggest automaker behind General Motors (NYSE: GM) and Toyota (NYSE: TM), is selling Jaguar and Land Rover to focus on its core brands after losses of $2.67 billion last year and a record $12.6 billion in 2006. India-based Tata would expand outside the Asian auto markets through the acquisition of such well recognized brands.

More than anything, this sale will help Ford stabilize its financial situation by not only getting a cash influx of around $1.5 billion from the sale but by shedding Jaguar, which Ford has admitted is losing money.

Tata Motors is part of Tata Group, India's biggest conglomerate which includes steel production and consulting services. Tata built the first Indian-designed car and plans to build a $2,500 car later this year. The real importance of this deal in long-run is probably not a milestone on Ford's turnaround but rather a milestone on Tata's path to becoming a major automotive player worldwide. Given the advantages the Indian company has in both the cost of design labor and manufacturing labor, investors in other car companies should be worried.

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Honda (HMC)

 

Google Inc. (NDAQ: GOOG) shares are down sharply today after new data from comScore was released showing a decline in the number of web users clicking on ads. The news prompted many analysts to cut their price targets and issue warnings as the vast majority of Google’s revenues comes from its pay-per-click program. However, others insist that these concerns over overblown and that the technology giant will be able to quickly recover thanks to stronger pricing. So, is this a time to sell Google stock or simply a good entry point while shares are cheap?

Google’s AdWords program faces a variety of challenges going forward. comScore reported that Google’s paid clicks dropped 7 percent in January from the previous month and were relatively flat with the same period last year. This is the lowest click-through rate since comScore started reporting the data. Google had indicated some concerns about paid clicks back in the fourth quarter, but blamed the slowdown on technical changes designed to reduce the number of accidental and fraudulent clicks by users. Some analysts believe that these technical improvements should lift conversion rates and lead to stronger pricing.

Google also faces a variety of other issues related to its pay-per-click business. Businesses bidding on keywords are quickly finding that many of them are now priced so higher that they are just breaking even upon conversion. This peak in keyword pricing means that Google’s revenue growth will likely begin to slow as the revenue-per-click peaks. Since this program accounts for around 90%+ of the company’s revenues, this almost certainly will lead to slower growth. Slower growth means a lower multiple, which means a lower stock price despite the same earnings.

Google is also dealing with increasing fraudulent activity. Some businesses are clicking on competition ads in order to raise their marketing costs and reduce their conversions. A recent report by ClickForensics found that 28 percent of all clicks were fraudulent, which is up from 19.2 percent in 2006. This compares to an industry rate of 16.6 percent, which may prompt some advertisers to switch their campaigns to Yahoo Publisher or MSN Adcenter until Google can fix the problem. However, it can be a hard problem to fix and so far Google has just been refunding money to keep advertisers happy.

In the end, Google faces a variety of problems with its primary source of revenues. The recent slowdown in paid clicks may be attributable to a broader economic slowdown, but the reality is that its other businesses will inevitably slow down as well. The stock has already dropped substantially off of its high as investors slowly come to this realization, but it may face further declines unless the company finds a way to incease or diversify its revenues. Combined, these factors make GOOG a stock worth watching!

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TLC Vision Corporation (NDAQ: TLCV) woke up to an interesting note from the founder and former chief executive of its arch rival LCA-Vision Inc. (NDAQ: LCAV)- he purchased 5 percent of the company and wants to be CEO! Dr. Stephen Joffe blasted the company for the more than 60 percent drop in TLCV’s shares over the past year, which he called “a self-inflicted wound” and “a byproduct of bad decision-making by the board and management”. The LasikPlus founder then proposed joining the board as executive chairman or chief executive to implement strategic and business model changes for the troubled company. So, is this a development that makes this stock one worth watching for your portfolio?

Dr. Joffe was one of the founders of the laser vision correction industry and was reportedly already in talks about joining the company to implement his strategy and effect a turnaround to restore value in the troubled franchise. These talks ultimately fell through and now the large shareholder is just trying to protect his sizable investment from poor strategy and capital decisions being made by the company. For example, recent Dutch auctions offered unhappy shareholders securities worth roughly three times the price of shares trade at today. The board accomplished this with an enormous mountain of debt and interest costs that could eliminate profitability for many years ahead.

Dr. Joffe also makes several other arguments in his letter to the board. Here’s a complete copy:

Thank you for calling me back yesterday, I appreciate your time and your effort to explain away the more than 60 percent drop in TLC’s shares over the past year. Frankly that loss in value is a self-inflicted wound–a byproduct of bad decision-making by the board and management.

On top of the list of ill-conceived judgments is the board’s decision to buy off many of its critics with a disastrous Dutch auction that offered unhappy holders roughly three times the price the shares trade at today. To accomplish this, management and the board burdened the corporation with an enormous mountain of debt and interest costs that could sharply suppress, if not eliminate, profitability for many years to come.

TLC is part of an industry that is still in its infancy. As a matter of principle, I want to see TLC succeed and prosper because of the life-changing difference it can make in the lives of patients.

Yet we are already more than 40 days into calendar 2008, and I seriously question whether TLC has the right strategy, the right people, or the right business model to survive and succeed in the years ahead. I am not the only major shareholder who is deeply disturbed by these concerns.

Currently I am still a significant holder of TLC’s shares, but unlike other troubled shareholders, I understand the economics and challenges of the laser vision correction business from the standpoint of a manager and operator. I founded LCA-Vision, TLC’s largest competitor, and as chairman and CEO I was directly responsible for that company’s enormous success, until my departure in February 2006.

Right now, my intention is to protect my already sizeable investment in TLC. Before the board’s abrupt decision to initiate the disastrous Dutch auction, we were in serious discussions about my joining TLC to oversee the turnaround. Consider this letter a formal request to renew those discussions. I believe all shareholders stand to benefit from my extensive experience as one of the founders of the laser vision correction industry.

Please respond 5:00 pm (eastern) on Monday the 18th of February 2008, to discuss my joining the company as Executive Chairman or CEO to implement my strategic plan to turnaround and rebuild this formerly valuable franchise for the benefit of all shareholders. I am available to speak with you throughout the upcoming weekend and can be contacted via email at xxxxx or by cell phone on xxxxx or xxxxx.

While I would prefer not to take this effort public, your failure to move forward will force me to take whatever actions are necessary to protect my investment and ensure a timely turnaround of TLC’s business.

In the end, this is great news for TLCV shareholders as Mr. Joffe is an experienced executive that has a lot to offer. Clearly, his involvement with their main competitor will yield valuable information while his turnaround strategy likely will not harm the company any more than it has already harmed itself. Given the unrest of many existing shareholders, the likelihood of his election to the board in the event of a fight are also reasonable high. Combined, these factors make TLCV a stock worth watching over the next few months!

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Take-Two Interactive Software, Inc. (NDAQ: TTWO) shares soared today after Electronic Arts Inc. (NDAQ: ERTS) offered to acquire the company for $26 per share, or about $1.9 billion, which is a 64 percent premium over the stock’s prior closing price. The video game maker rejected the offer, calling it a “highly opportunistic” attempt to take advantage of the upcoming release of Grand Theft Auto IV set for April 29th. The company said that it would resume buyout talks after the game’s release, but EA fired back that there can be no certainty in the future that any buyer would pay the same high premium being offered today. So, is this a stock worth watching for your portfolio or is the stock now grossly overpriced?

Activist hedge funds have been pushing Take-Two towards a sale for some time now amid poor financial results, accounting problems, and controversy surrounding violent and sexual content in the company’s games. These hedge funds, which own a combined 46% of the company, were successful in forcing the company to evaluate a sale last March but nothing came of it. Then, billionaire activist Carl Icahn joined the fight back in November - a great invesment in today’s terms! These activists now likely own more than 50% of the company and will definitely vote in the best interests of shareholders if a serious offer is made for the company. They will also take action if the company decides to ignore great bids.

The other key point within this story is that the $26 per share offer was the second one made by EA. The first $25 bid was rejected and never presented to shareholders for reasons unknown (maybe it wasn’t material enough?). This is important because it could mean two things: (1) There are other unannounced potential bidders for the company, and (2) there is a good possibility that the company could hold out for another sweetened offer. Often times, initial offers are low-balled at first to gauge interest and then built up until it meets investor demands. Clearly, EA is interested in Take-Two’s hit titles and it will be interesting to see how much they are willing to pay for them.

Hank Greenburg also points out another interesting point to this story. Electronic Arts sent a letter to Take-Two not long ago arguing that it faces ongoing financial, legal and operating issues and a very intense competitive environment. In fact, EA even said that it would be increasingly difficult for the company to create sustainable shareholder value while it remaisn exposed to considerable risk of value loss. Just recently, EA also commented that once GTA IV ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors. So, all of this begs the question of why they are interested in the company at all?

In the end, it will be interesting to see how activist shareholders respond to this rejected offer given their new found wealth. Investors can bet that they will take action if they believe that the offer represents a fair price in order to unlock value. This is why shares are currently trading above the $26 per share buyout price and why many are so bullish on the stock. Combined, these factors make TTWO a stock worth watching!

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Reddy Ice Holding Corporation (NDAQ: FRZ) directors may be in for a fight after a large activist hedge fund has nominated its own slate of directors while quickly ramping up its stake in the company. The Shamrock Activist Value Fund announced its slate of candidates for the company’s board of director earlier this month while increasing its stake to more than 14.38 percent in recent days. Many investors are hoping that the activist hedge fund will take action to unlock value in the company, whose shares are trading well off of their 52-week highs and well below their intrinsic valuation. So, is Reddy Ice a stock worth watching for your portfolio given this activist involvement?

Reddy Ice announced at the end of January that its proposed acquisition by GSO Capital Partners had been cancelled due to the ongoing problems in the credit markets. Shamrock had called the $31.25 per share buyout price “grossly inadequate” and suggested a potential conflict of interest existing between the company executives, some board members, and the hedge fund. The company said it will continue to explore transactions with GSO and review other alternatives available to the company. It is unclear whether Shamrock’s attempt to takeover the board is an attempt to prevent a takeover or an attempt to sell the company to a higher bidder. However, shares continue to rise ahead of the anticipated proxy fight.

Reddy Ice is set to release its financial results on Wednesday, February 27th along with a conference call to discuss results. Many investors are expecting to see slightly lower results for the fourth quarter after the company guided lower three times since July of last year. Most recent estimates peg the full year revenues to be between $335 and $345 million and net income to be between $14.8 and $19.7 million or $0.66 to $0.90 per share. Adjusted EBITDA is seen to be between $85 and $90 million. Meanwhile, many analysts were expecting revenues of $351 million with net profit of $15.9 million and EBITDA of $86 million. It will be interesting to see how its actual results compare given the difficult market conditions.

In the end, this is all great news for Reddy Ice shareholders who stand nothing to lose and everything to gain from Shamrock’s involvement. If the hedge fund is able to install its own directors and conduct a real auction of the company, shareholders go see a substantially larger upside to this company. Obviously, there is value to be realized from this point given GSO’s valuation of $1.1 billion while the company is currently priced at just $541 million with no material change. Combined, these factors make FRZ a stock worth watching closely over the next few months!

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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
BEA Systems (BEAS)
Biogen (BIIB)
CSX Corp (CSX)
Imclone Systems (IMCL)
J.C. Penny (JCP)
Lear Corp (LEA)
Motorola (MOT)
Time Warner Cable (TWC)
Time Warner (TWX)
Williams Companies (WMB)

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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Crocs, Inc. (NDAQ: CROX) shares fell sharply today after the company announced an 84 percent jump in profits on revenues that nearly doubled on international demand, but reaffirmed a 2008 outlook below Wall Street expectations. Momentum stocks like these trade largely on expectations in addition to physical numbers. Unfortunately, there were problems with both today as the stock sank more than 10 percent mid-day as shareholders consider whether or not the company will be able to keep up its stellar track record of success. So, is Crocs a stock worth a look now or is there more downside?

The first thing to consider is valuation. The valuation of a high-growth company is often set by its expected growth in addition to its actual performance. This is why high-growth companies like Crocs can drop when reporting spectacular results - it depends largely on expected growth rather than actual performance. The reaffirmed 2008 guidance in this case was not what many investors were expecting. This is clearly visible if we take a look at the company’s historic PEG ratio, which shows in plain view that investors were expecting much faster growth. Meanwhile, if we take a look back at the company’s earnings announcements, we see that its earnings surprises are slowly declining and now risk being flat or negative with a reaffirmed guidance.

Crocs’ earnings call also gave some valuable insights into why the firm’s shares dropped so dramatically. Analysts were most concerned about a 27.2 percent rise in inventory build-up during the third quarter. The company ended the fourth quarter with $248.4 million - up $195.3 million from the end of the third quarter. Management defended the build-up by arguing that they have chased demand since inception and felt that the planned build-up was necessary to meet first half forecasted customer demand. However, the carry cost of excess inventory - that is, warehousing and distribution costs - can be steep and may end up costing the company big money if they are wrong during future earnings announcements.

All of that being said, Crocs currently trades at just 10x forward earnings, which is far below that of its peers. The company also has a strong product line and expects to see continued growth through 2008 despite a decline in the U.S. economy through strong international growth that is already showing up in today’s announcement. In the end, Crocs carries a lot of risk with its slowing earnings and large inventory, but the stock is trading at historically cheap levels. In the end, it is clear that growth is slowing but the concern is that management may not realize it and be overbuilding inventory…

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The Brink’s Company (NYSE: BCO) directors may face some competition during this upcoming proxy after MMI Investments unveiled its own slate of board candidates in a PRE14A filing with the SEC. The activist hedge fund charges that the security company’s valuation has chronically lagged its peers while management has failed to address the issues of strategic configuration that have caused this under-performance. MMI contends that its nominees are highly qualified and committed to selecting and executing the strategy that will maximize shareholder value. So, is Brink’s worth a second look now?

MMI Investments currently owns approximately 8.4 percent of Brink’s with other activist shareholder holding additional substantial stakes, which increases the chances of success in this particular scenario. The activist hedge fund believes, as many others have in the past, that has a best-of-breed portfolio of assets but is chronically undervalued thanks to a “conglomerate discount”. Activist hedge funds have long recommended that the company spin-off its various divisions in order to unlock value for shareholders.

MMI’s proposed slate of directors are totally committed to the creation of shareholder value and have the necessary experience and skillsets to execute on that commitment, both operationally and strategically. They offer substantial expertise in the security industry and have the strategic vision to value creation. Translated: Not only will they push for a spin-off, but they will also effectively oversee the various resulting companies and/or obtain the most favorable pricing in the event of a sale of any divisions. Combined, these factors make Brink's a stock worth watching with the upcoming board of directors!

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Yahoo Inc. (NDAQ: YHOO) elaborated on their discussions with various parties regarding a possible merger in its Form 425 filed with the SEC today. The Q&A for shareholders elaborates on the News Corp (NYSE: NWS) bid for the company as well as several other valid questions that have been raised during the past few weeks as the company looks towards a possible acquisition. It provides valuable insight for shareholders and arbitreurs looking at a possible deal.

Here’s a complete transcript of the Q&A direct from the filing:

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Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) shares moved sharply lower after the two telecom providers announced new flat-rate plans. The move marks a shift from high margin services to lower margin staples that could put pressure on margins and may spark further reduction in prices aimed at increasing users. The commoditization of the wireless voice service industry is a move that many investors expected but dreaded as it could end up curbing growth rates and reducing valuations for many telecom providers. So, what does all of this mean for shareholders of VZ and T?

Currently, both plans are priced at $99 per month, which means that it will only affect so-called power-users that would like their services consolidated into one predictable price. Moreover, the moves are also designed to increase customer loyalty by locking them down for longer contracts. The two companies are hoping to attract a number of new users from other service providers that offer more expensive services. Indeed, this could help boost revenues over the short-term as an increased number of users sign up but may put pressure on margins as the average revenue per user would likely decline while expenses would remain consistent or higher (in the event of a new marketing spend).

The downside is that this is a familiar path for the telecom providers that initially had contracts for their original services before being forced to take them down thanks to increased competition. The unlimited services are expected to meet the same fate eventually as prices continue to be lowered and contracts eliminated. Once these wireless services have switched to more of a staples service, they will likely meet the fate of phone companies now that operate on razor-thin margins and are forced to come up with new features in order to compete.

Investors may be better off looking at handset makers if they wish to benefit from this industry. Unlike services, handsets must be replaced every few years while rapid growth in emerging markets is maintaining and accelerating growth in many companies. Additionally, companies like Motorola are being targeted by activist investors bent on unlocking value for shareholders and converting them to more pure-plays in order to benefit directly. In the end, the industry as a whole is commoditizing and that means slower growth, smaller margins, and increased competition… it may be time for some investors to move on…

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Herzfeld Caribbean Basin Fund, Inc. (NDAQ: CUBA) shares are up sharply today on news that Fidel Castro has stepped down from Cuba’s top post. The fund is a non-diversified closed-end management investment company with a focus on investing in issuers located in Caribbean Basin countries, including Cuba. Obviously, any normalization of U.S.-Cuba relations would be a massive boost to the troubled Cuban economy which could be flowing in U.S. vacation dollars. In the past, the normalization of these relations seemed like nothing but a distant dream, but many are now speculating that this change in power could put a timeframe on the event. So, is Herzfeld worth watching?

The first thing to remember is that Fidel Castro’s step down from power does not necessarily mean that U.S. relations are imminent. After all, Fidel’s own brother Raul is the one that will be in power and there is no guarantee that he will do anything to mend relations with the country’s powerful neighbor. The good news is that many believe that the younger Castro brother will consolidate power and free him up to pursue soem kind of slow overhauls aimed at opening up the country’s closed economy and perhaps even its closed society. Indeed, Wall Street expectations proved to be very high today of an economic overhaul in the country at some point over the next few years.

There is also talk among U.S. politicians that changes be implemented back at home to encourage foreign travel and trade with the communist country. “We have had a bad policy for nearly 50 years for bad reasons that have nothing to do with Cuba,” said Democratic Representative Charles Rangel. Similar sentiment is shared by others who support lifting the travel ban on the country along with the trade embargo at some point in the future. After all, the U.S. trades freely with other communist countries like China with little regard for politics - why should Cuba be any different?

The second thing to remember is that this stock is extremely volatile as the company recently had a float of just 1.7 million shares and a market cap of $12.5 million before a rights offering doubled the number of shares. Additionally, the thin daily trading volume can also make swings much larger than they should be. Unfortunately, there aren’t many better options out there that are better exposed to Cuba in particular, which means that investors may have to stick with this stock for the time being. However, it may be wise to hold off on investing in this particular fund until shares return to normal levels.

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ECtel Ltd. (NDAQ: ECTX) is a small telecommunications firm that is starting to generate some big waves as the leading provider of revenue assurance solutions. The company’s flagship fraud management and revenue assurance products, collectively known as FraudView, leads the market and helps telecom operators reduce their financial risk while driving increased customer satisfaction and revenues. Recently, ECtel expanded its offerings to include its Integrated Revenue Management (IRM) platform, which features credit and risk monitoring, quality of services business impact analysis, roaming assurance, and business intelligence tools for enhancing profitability and scoring. Together, these solutions can help telecom operators improve their profitability and customer service.

ECtel shares moved up over 6 percent today after the company announced that its new offerings were paying off. The telecommunications company reported that throughout 2007 it received a total of 12 orders for new systems of its Integrated Revenue Management solutions. The new clients are reportedly some of the most well-known and respected telecom service providers from Europe, Asia and the Americas, including Tele2, CAT Telecom, and Rostelecom. Meanwhile, the company’s flagship FraudView product also remains strong with over 75 deployments worldwide, boasting the industry’s largest installed base for wireline and wireless operators and the market’s first solution supporting 3G and VoIP networks.

“In 2007, we continued to see strong demand for our Integrated Revenue Management solutions from international telecom operators, strengthening our position as one of the leading revenue management companies in the world,” said Mr. Itzik Weinstein, President and CEO of ECtel. “The complexity of today’s telecom market makes it essential for operators to install an effective revenue management platform. ECtel’s solutions provide our customers with crucial insight into their revenue chains, allowing them to save money and run their businesses as efficiently as possible.”

ECtel is also trading at an attractive valuation for a company with an industry-leading product. The company has almost have of its market value in cash - $1.40 per share - while maintaining a book value of around $2.71 per share. Despite its negative growth in recent years, the company does appear to be headed towards a turnaround with its new strong product offerings. If it succeeds, the cash stockpile it has will no longer be in jepardy and its share price will likely increase to reflect that fact. Right now, the firm is trading at some of its lowest levels of the year and may be a stock worth watching!

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Wal-Mart Stores Inc. (NYSE: WMT) has been mentioned in two articles over the past few days on SECInvestor.com, and for good reason - as the world's largest retailer with a $200 billion market capitalization and $350 billion in annual sales Wal-Mart has innumerable impacts on other companies and the U.S. economy as a whole. Today, it reported results that bode well for its future and the U.S. economy but not so well for its competitors, as Wal-Mart beat analyst predictions about its fourth-quarter earnings.

For the quarter ending January 31st, the company saw earnings grow 5.1% to $4.1 billion from $3.9 billion for the same quarter last year. The results were largely due to an 8% increase in sales to a staggering $106.3 billion - a record quarter for the company and the first time it cracked the $100 billion mark in quarterly sales. Interestingly, these results came even though consumer confidence in the economy continues to erode.

"Clearly our underlying operational performance exceeded the expectations we had at the beginning of the quarter,'' Chief Executive Officer H. Lee Scott said, admitting that to maintain it the economy will "be a critical factor."

Wal-Mart has been able to drive sales and foot-traffic from its expanding grocery and electronics businesses. Though the grocery business is notoriously low-margin, Wal-Mart is in the unique position to be able to attract customers with its expanded food offerings but monetize the traffic with its other product offerings.

Despite these promising results, when a company is nearing $400 billion in annual sales how much sales or profit growth is realistic moving forward? Wal-Mart management is in the unique position of having tremendous brand-recognition and traffic advantages, but they are also in the unenviable position of trying to further leverage those advantages to grow already huge results - with shares up only about 1% the market sentiment seems mixed on the future.

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Barington Capital is an activist hedge fund that has never had a bad investment, according to Dealbreaker magazine. The firm recently filed its Schedule 13F-HR filing with the SEC detailing its current holdings. Unfortunately, Barington has been holding many of its stocks for a long time which means that it may be too late for investors to trade alongside the firm. Luckily, the recent economic downturn has pushed many of these stocks down off their highs and may give investors and opportunity to invest alongside one of Wall Street’s greats. So, without further adieu, here are some of Barington’s top holdings for your consideration!

Barington’s largest holding is The Pep Boys - Manny, Moe & Jack (NYSE: PBY) in which it has a stake worth approximately $64,586,000. The automotive retail and service chain has been beaten down nearly 50 percent off of its highs of $22.49 trading now at just $11.45. The company has been struggling since it announced that its losses widened it would close stores, and reduce staff in November of last year. Recently, Pep Boys struck a deal with Lanelogic to enable its customers to sell used vehicles, which many analysts believe will boost profitability for the struggling company. Meanwhile, the Chairman of the Board also picked up 50,000 shares ahead of the announcement. And finally, the same strong fundamentals that prompted hedge funds like Barington to take a stake in this company still exist, making it a stock that is definitely worth watching!

Barington’s second largest holding is Lancaster Colony Corp. (NDAQ: LANC) in which it holds a $60,606,000 stake. The manufacturer and marketer of specialty food products is down about 25 percent off of its highs, but recently reported strong earnings that have sent shares higher. The company has also been buying back its own shares and eliminated and has very little debt. Activists made big money in this stock back in 2007 when the company divested its automotive accessory divisions. Its willingness to unlock value and strong fundamentals despite a troubled economy has made Lancaster a stock that is definitely worth watching!

Barington’s third largest stake is in A. Schulman, Inc. (NDAQ: SHLM) in which it holds $51,019,000 worth of stock. The stock is trading about 20 percent off of its highs for the year, but recently announced steps that it was taking to improve its profitability in North America. The company plans to shut down its manufacturing facility in St. Thomas, Ontario and to pursue a sale of its plan in Orange, Texas. This consolidation of production will improve overall capacity utilization and restore long-term profitability and stead growth to its North American operations. There has also been some speculation that the Schulman may pursue strategic alternatives after Ramius Capital installed two board members while Barington still holds a large stake. Combined, these factors make SHLM a stock worth considering!

Barington also holds stakes in Consolidated-Tomoka Land Co. (AMEX: CTO), Convergys Corp. (NYSE: CVG), Dillards Inc. (NYSE: DDS), Fisher Communications Inc. (NDAQ: FSCI), Griffon Corp. (NYSE: GFF), Macy’s Inc. (NYSE: M), and Syms Corp. (OTC: SYM). In the end, these are all stocks worth watching given the activist hedge fund’s impeccable record of success, especially given that many of them are now available at bargain basement prices!

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SourceForge, Inc. (NDAQ:LNUX) is starting to feel the pressure from a large institutional shareholder calling for the web services company to unlock value through a share buyback. Trivium Capital Management, which owns a 10.1 percent stake, recommended on many conference calls and discussed with management the possibility and importance of a stock buyback. Many investors are grateful for the intervention as they have had similar concerns about the company’s overcapitalization and fear that it may make acquisitions that could hurt it going forward.

The activist hedge fund argues that SourceForge has gone through many transformative changes during the past year, but the overall business plan has been mediocre at best. This has resulted in a modest enterprise value of $60mm with a total market capitalization of $120mm, leaving the equity value of the business at $60mm. Clearly, this is unacceptable in terms of the valuation metrics that Wall Street is ascribing to the business prospects of the firm. The board has a fiduciary responsibility to shareholders to close this valuation gap and enhance shareholder value.

Trivium suggested that a share buyback may be the best option as it could result in a stock price between $5 and $15 per share. A share buyback is also seen as necessary given that its 2008 to 2010 earnings are seen to be highly accretive to EPS; the company has excess cash that stands at about 50 percent of equity value; it would send a message to investors and employees that the company believes in itself; and it might increase the share price which would benefit shareholders. For these reasons, the activist hedge fund recommends that the company pursue an initial 10 million share buyback and consider selling Collabnet in order to fund additional buybacks.

In the end, Trivium understands that economic times are difficult and SourceForge is in a transitional phase, but still insists that they should look to unlock value rather than pursue acquisitions. Moreover, if the company is unable to execute in 2008 and 2009, the hedge fund believes that management should pursue strategic alternatives, which could include a sale of the company. Combined, these factors make LNUX a stock worth watching closely over the next few months!

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Toshiba Corporation' (OTC: TOSBF) promotion of its HD DVD format as the successor to DVD is seen as coming to an end. HD DVD and Sony Corporation's (NYSE: SNE) Blu-ray format both offer superior sound and audio quality as well as total data capacity compared to DVDs, but they were fighting eachother to become the accepted standard in what amounted to an updated version of the Betamax versus VHS war of two decades ago.

Originally the battle was seen as a stalemate with no clear edge for either HD DVD or Blu-ray technologically or from industry support, but this changed rather abruptly in the last few weeks with Warner Bros. Studio announcing it will only release movies in Blu-ray followed by Wal-Mart Stores (NYSE: WMT) decision to stock only Blu-ray movies and players. This left Dreamworks Animation Studios, Universal Studios and Microsoft Corporation (NASDAQ: MSFT) as the only major backers of HD DVD.

Though about one million stand-alone disc players have been sold for each format, the inclusion of a built-in Blu-ray player in the Playstation 3 was seen as a major gamble that may now pay-off for Sony. The entire movie market is also anxious to see a format winner decided as consumers are hesitant to buy either standard when there is a chance the equipment and discs will become obsolete.

Toshiba has not made an official announcement saying it will discontinue its HD DVD format, but an anonymous insider at the company says the anticipated move will likely come at a meeting tomorrow. Despite having sunk billions of dollars into the format, Toshiba's stock responded positively to the speculation because with HD DVD all but dead investors want to see the company cut its losses and instead move money into areas of its core competency such as computer chips, especially flash memory.

So, who are the winners and losers in Blu-ray's victory? Well, Sony is the most obvious big winner as it owns the format's technology and its PS3 is seen as getting a sales advantage because it includes the player. Indirectly, all movie studios and retailers will benefit as consumers are much more willing to invest in a new technology once it becomes the standard. The biggest loser is Toshiba, but the extent of the loss will really be determined by how the company rebounds and invests its newly freed capital - after all, Sony lost the last standard battle with its Betamax format but it not only survived but thrived.

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GenCorp Inc. (NYSE:GY) is taking fire from several activist hedge funds bent on unlocking value in the company’s shares. Pirate Capital, Carl Icahn, Steel Partners, and Sandell Asset Management have all taken stakes in the defense company and pushed for changes in order to unlock value for shareholders. This “who’s who” list of activist investors has many believing that changes may finally be implemented to help jump the company’s lackluster share price. So, should you look at picking up some shares of GenCorp?

Warren Lichtenstein’s Steel Partners has been a GenCorp shareholder for several years and first agitated for change in December of 2002. The activist hedge fund continued the assualt that culminated in a $700 million bid for the defense company in 2004. The company then issued new stock that effectively raised the takeover price by $127 million and Steel Partners withdrew its bid. Shortly after, Lichtenstein announced his first proxy contest that was eventually dropped when the company added a corporate governance expert to its board. Now, Steel Partners is renewing its push to unlock value by nominating a new slate of six directors that they believe can help unlock value.

Thomas Sandell’s Sandell Asset Management is another activist hedge fund that began its push for changes in March of 2005. The firm requested that the company make more changes to improve governance and also sell a chemicals unit. More recently, the hedge fund demanded that the company remove its anti-takeover measures and allow large shareholders to call special shareholder meetings. Clearly this would lend more credibility to the board, but would also open the door for hedge funds like Steel Partners to step in the door.

Thomas Hudson’s Pirate Capital was yet another activist involved with the company back in 2006 when it nominated its own directors to the company’s board of directors. The move was mollified when the company agreed to abandon its “poison pill” anti-takeover protection, but Pirate succeeded in winning three seats. Pirate noted that the company had substantial value tied up in its real estate that it believed should be unlocked through a strategic transaction. In particular, the hedge fund was interested in the company’s Sacremento real estate holdings.

In the end, there are a lot of activists circling around this stock. No doubt, Steel Partners is most interested in unlocking GenCorp’s real estate value while Sandell is bent on making governance changes and selling a chemical unit. Whether or not the hedge funds will succeed in getting their wishes remains to be seen, but this is definitely a stock that is worth watching over the next few months - with three activist involved, the odds of change are much higher!

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Best Buy Co. (NYSE: BBY) is the 800-pound gorilla of electronics retailers with a market capitalization of nearly $20 billion and a stellar record of revenue and earnings growth – but today its CEO admitted that it is not immune to a weak economy.

Brad Anderson, Best Buy's CEO and Vice Charmian, said in a statement that, “Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets.”

The effect of lower fourth-quarter revenue projected into this year means that Best Buy is expecting 2008 earnings of only about $3.05 per share compared to previous guidance of $3.10-$3.20 per share.

Given an undeniably weak economy led by a dangerous housing market situation, lower guidance and weaker sales are no surprise, but Best Buy's response certainly is: the company plans on continuing to expand its U.S. retail space by 10% this year. There is certainly logic to this contrarian move in the spirit of Warren Buffett's advice “Be greedy when others are scared,” and Best Buy thinks it can leverage its strong brand and recently updated store format into new customers and sales even in a poor economy by cannibalizing business from competitors like Circuit City Stores Inc. (NYSE: CC). But, though Best Buy is certainly in a better position than Circuit City, taking sales from rivals only works to buoy growth if the total number of sales in the sector don't shrink too much – if the sales pie gets small enough it doesn't matter how many pieces you get, growth is still in trouble.

More than counting on a superior business, Best Buy executives have said they remain “upbeat about the long-term outlook,” but is this optimism justified? Interim Chief Financial Officer of the company, Jim Muehlbauer, admits that “The macroeconomic environment grew more challenging after the holidays [leading to] our post-holding results [not being] what we originally expected.” What should confuse investors is what makes CEO Anderson or CFO Muehlbauer think the “macroeconomic environment” is going to turnaround any time soon. As a commentator for the WSJ noted, foreclosed homes don't need home theaters with $2,000 flat-screen TVs.

A discussion of the company's prospects wouldn't be complete without mentioning the 800-pound gorilla of all retailers – Wal-Mart Stores Inc. (NYSE: WMT). Wal-Mart continues to expand its electronic offerings while stealing market share from specialty retailers across all sectors. With Best Buy under assault from not only the U.S. economy but the biggest corporate driver of the economy, now might not be the time to be greedy.

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Mediware Information Systems (NDAQ: MEDW) is under pressure to put itself up for sale by a major shareholder. Cannell Capital, which owns a 12.9 percent stake in the firm, sent a letter to the board of directors illustrating just how cheap MEDW was on both an absolute and relative basis. The activist hedge fund encouraged Mediware to interview an agent to solicit a transaction that could result in an auction or merger in order to produce the highest economic benefit to shareholders. So, is this a company worth buying?

Cannell believes that there is a massive valuation disparity between Mediware and its peers. In particular, the hedge fund showed that the company’s EV/LTM EBITDA was a mere 3.2x compared to peer levels of between 16x and 18x. Similarly, its EV/LTM Sales was just 0.7x compared to peer levels of between 2.1x and 2.6x. It is also useful to note that Mediware’s market capitalization stands at just $50 million, which means that a substantial portion of the company’s income is devoted to simply paying the costs of remaining public.

So, what does all of this mean? Well, Mediware would make for a cheap acquisition that could become even cheaper if the suitor accounts for savings in administrative costs associated with being a public company. With the company’s shares well off of their $10.44 highs, shareholders are more likely than ever to support such a transaction. Mediware also has many potential strategic suitors, including Cerner Corp. (NDAQ: CERN), Eclipsys Corp. (NDAQ: ECLP), and Global Med Technologies Inc. (GLOB).

In the end, Mediware is a great candidate for this type of transaction given its valuation disparity and potential synergies. Whether or not management decides to pursue such a transaction remains to be seen, but this is definitely a stock worth watching over the next few months!

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Daniel Loeb’s Third Point is one of the most successful activist hedge funds on Wall Street with an annualized return right around 22%. Recently, the hedge fund reported its holdings in its mandatory Schedule 13F filing with the Securities and Exchange Commission. The regulatory filing showed a series of interesting bets that are definitely worth exploring given the funds impressive track record. So, without further ado, let’s take a look at Daniel Loeb’s major holdings!

MasterCard Incorporated (NYSE: MA) is one of the fund’s largest holdings with a stock position valued at around $322.8 million and $11.5 million worth of call options. MasterCard was somewhat beaten up after many speculated that a slowdown in U.S. consumer spending would hurt the firm’s earnings. However, the stock has shown great resilience and recently announced record profits yet again. Since the firm doesn’t issue cards itself - only collects transaction fees - it is also not exposed to any direct credit risks. This misconception may be artificially keeping the stock down, which could make it a compelling stock pick.

Cypress Semiconductor Corporation (NYSE: CY) was another major element of Daniel Loeb’s portfolio. The semiconductor has been beaten down so far this year amid concerns about its earnings as well as its potential acquisition of Simtek Corporation - which will lead to less cash and more debt. The activist investor has been attempting to unlock value in the company for some time after arguing that its implied value of the business is understated by at least 50 percent early last year. In particular, the hedge fund wanted the company to explore ways of divesting its Sunpower (NDAQ: SPWR) stake as soon as possible. Since this was before the drop in 2008, we can expect the firm to be only further undervalued now.

Third Point is also bearish on several stocks including Arthrocare Corp. (NDAQ: ARTC), Neustar Inc. (NYSE: NSR), and United Therapeutics Corporation (NDAQ: UTHR). Loeb also holds a $13.2 million position in the Proshares UltraShort QQQ ETF indicating that he continues to be bearish on the overall economy. Finally, the activist also managed to successfully exit his stake in BEA Systems, Inc. (NDAQ: BEAS) after Oracle Corporation (NDAQ: ORCL) agreed to purchase the company for $7.85 billion. All in all, Daniel Loeb’s Third Point continues to see great successes and his holdings are definitely worth watching!

Investors can view the rest of Daniel Loeb’s holdings in his Schedule 13F filing with the SEC. Investors can also track Daniel Loeb’s future stock holdings and setup free alerts when he trades at SECFilings.com!

Warren Buffett’s Berkshire Hathaway (NYSE: BRK) revealed its holdings for the quarter ended December 31st in its required Schedule 13F filing with the SEC. The billionaire investor revealed two new stakes and several raised stakes, sending shares in those companies higher on the day. Buffett has built up the best track record on Wall Street and has consistently beat the market over the past decades (excluding losses incurred during his minor foray into currency trading). This has made Buffett (rightly) one of the most watched investors on the street.

Kraft Foods Inc. (NYSE: KFT), the Altria Group, Inc. (NYSE: MO) spin-off, was Buffett’s largest new position. News of his investment sent shares more than 5.6 percent higher in early trading as the legendary investor bought up 132,393,800 shares of the firm - making him the company’s largest shareholder with an 8.5 percent stake. Kraft has long been seen as a value play since its spin-off from Altria; in fact, spin-offs in general tend to outperform the market during their first few years as an independent company. Simply put, Altria shareholders who received shares in the spin-off may have sold without justification while management is typically well-incentivized to succeed. Combined, these factors make KFT a stock that is definitely worth watching over the next few years!

GlaxoSmithKline plc (NYSE: GSK) was another one of Buffett’s new positions. Like Kraft Foods, news of his investment sent shares higher by nearly two percent on the day as the investor bought up 1,510,500 ADR shares in the pharmaceutical giant. Shares in the company have dropped 11.5 percent since it announced a profit warning back in early January while the stock has been trading down since early last year. Despite Glaxo’s poor 2008 outlook, the company does hold a solid drug portfolio and the stock appears to be trading at cheap levels. Combined, these factors make GSK a stock that is definitely worth tracking over the long-term!

The famous investor also raised his stakes in several companies, sending them higher on the day. including:

• Burlington Northern Santa Fe Corp. (NYSE: BNI)
• CarMax Inc. (NYSE: KMX)
• Johnson & Johnson (NYSE: JNJ)
• US Bancorp (NYSE: USB)
• Wells Fargo & Company (NYSE: WFC)
• Sanofi-Aventis (NYSE: SNY)

In the end, Warren Buffett is widely considered to be one of the best investors on Wall Street, which earned him the nickname “Oracle of Omaha”. As a result, the Schedule 13F filings that reveal his holdings are ones that are definitely worth watching each quarter. You can track these filings for free and setup e-mail alerts at SECFilings.com and you can view the rest of his holdings by checking out the Schedule 13F filing!

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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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Gaiam, Inc. (NDAQ: GAIA) announced the spin off of its Real Goods Solar (NDAQ: RSOL) unit last week in a move that could substantially boost shareholder value. Real Goods Solar installs residential solar energy systems in California and claims roughly 2/3 of the residential solar market. A market that values solar will surely find value in this pure play that promises to net a substantial amount of cash for Gaiam and its shareholders. So, should you look at buying into this hot new issue?

Initial public offerings in hot sectors like this generally spike early in their trading, which can make it difficult for investors to obtain a good price. Luckily, this particular spin off scenario gives investors the ability to obtain shares in the spin off company by purchasing shares in the parent before the separation. Essentially, shareholders are given the ability to get on the ground floor of one of the largest pure-play players in one of the fastest growing industries in the market.

Gaiam itself is also a strong, diversified company focusing on “green” products. Real Goods Solar will take over the company’s solar operations while the retail division will continue to focus on selling products like yoga supplies, exercise equipment, eco friendly home supplies and much more. Combined, the units are quickly growing with earnings rising more than 40% last year and a projected 50% in 2008. Currently, Gaiam commands a steep 75x multiple, but strong growth may justify that with a PEG ratio that is within the norm.

In the end, Gaiam is a great company and this spin off should only unlock additional value for shareholders. This is one of the few opportunities to get on the ground floor of the solar boom, but investors should carefully watch the terms of the spin off in case pricing goes beyond a tax free distribution. Combined, these factors make GAIA a stock that is definitely worth watching over the next few months!

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Point Blank Solutions, Inc. (OTC:PBSO) may be a small company with a market cap of just $188 million but some investors see big value in the body armor maker. Warren Lichtenstein’s Steel Partners is one such investor who offered to acquire the company for no less than $5.50 per share in cash. Unfortunately, the company rejected the offer last year and the activist hedge fund is now nominating its own slate of directors to take over the board and presumably force a sale. So, is this a stock worth buying at these depressed levels?

Point Blank shares plummeted after former chief executive David Brooks was charged last October with securities fraud, insider trading, tax evasion, and other offenses. Prosecutors alleged that he improperly inflated corporate profits and made the company pay for personal expenses including a face-lift for his wife. The news infuriated shareholders as the stock sank from around $6.20 per share to around $2.70 per share earlier this year. Shareholders are now ready for a change as shares continue to fall as investors are losing hope.

Steel Partners then announced this week that it would be taking matters into its own hands by nominating five of its own directors to the company’s board. The activist hedge fund has extensive experience working with and maximizing the value of other public companies in the defense industry, including United Industrial Corporation, Aydin Corp., ECC International corp. and Tech-Sym Corp. Additionally, the proposed directors have extensive experience in the defense industry and could provide valuable insight for the company to turn itself around after the disaster last October.

Very little has changed materially since the $5.50+ offer from Steel Partners, so it should be interesting to see whether the offer is still on the table. If so, that would mean a 37.5%+ premium to the current market price of $3.97. Otherwise, if the firm simply works to turn around the company it could lead to even higher share prices if successful. Combined, these factors make PBSO a stock that is definitely worth watching over the next few months!

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Intel Corporation (NASDAQ: INTC) is not having a particularly good week. On the heels of being sued by the University of Wisconsin-Madison for patent violation on its Core 2 Duo processors, the company has been raided by the European Union on suspicion of violating antitrust practices.

The raid was conducted by the European Competition Commission and included some retailers selling Intel products as well. A spokesperson for the Commission, Jonathan Todd, said "Commission officials carried out unannounced inspections at the premises of a manufacturer of central processing units and a number of personal computer retailers [because of suspicions that the companies] may have violated [European Community] Treaty rules on restrictive business practices and/or abuse of a dominant market position."

Though this is a breaking story with few substantive details, Intel spokesperson Chuck Mulloy confirmed the raids saying “There has been a raid on our offices in Munich. As is our normal practice, we are cooperating with authorities."

A raid on a legitimate business enterprise for antitrust reasons may seem extreme by U.S. standards, but the European Union has greater powers and is far more active than antitrust regulators here. The Competition Commission can fine companies up to 10% of their global revenue.

Examination of Intel by the Commission began in 2001 when Advanced Micro Devices Inc. (NYSE: AMD) sent a complaint alleging Intel was abusing its dominant market position. Besides these raids, Intel was already facing a hearing in Brussels later this month regarding allegations that it sold processors below cost in an attempt to bully AMD out of the market.

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Yahoo Inc.’s (NDAQ: YHOO) Jerry Yang lays out a very compelling argument for why he rejected the Yahoo bid in a letter to employees that we obtained through an 8-K filing with the SEC.

Here’s a transcript of the e-mail (exhibit 99.1):

Subject: our board’s decision

as you’ll see from the news release we issued today, our board of directors has reviewed microsoft’s unsolicited proposal with yahoo!’s management, financial and legal advisors. after a careful evaluation, the board has unanimously concluded that the proposal is not in the best interests of yahoo! and our stockholders. of course, the board of directors is continuously evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for stockholders.

we believe microsoft’s proposal substantially undervalues yahoo!-including our highly recognizable global brand, large worldwide audience, significant recent investments in advertising platforms, future growth prospects, our ability to generate free cash flow and our earnings potential as well as substantial unconsolidated investments (like alibaba and yahoo! japan).

you deserve the credit for the tremendously valuable business we have built. all of us in management, as well as the members of the board, deeply appreciate and respect what you have done and continue to do in order to maintain and enhance yahoo!’s leadership position in the online world.

we have been very deliberate about the steps we are taking to position yahoo!. we are putting in place the pieces we need to accelerate growth by becoming a leading starting point for users and the must buy for advertisers. the global online advertising market is projected to grow from $45 billion in 2007 to $75 billion in 2010, and our more focused strategies position us to capture an even larger share of this market. we are moving to take advantage of this unique window of time in the growth of the online advertising market to build market share and to create value for stockholders.

several key assets form a solid foundation as we execute this strategy. first, our global brand is a tremendous base from which to build leadership as the starting point for internet use: yahoo! is one of the most recognizable and admired brands in the world. we have some 500 million users (1 out of every 2 internet users worldwide). in the u.s., we are #1 in personalized home pages, mail, music, news, sports, shopping and travel. yahoo! also is #1 in time spent on our sites, an increasingly important metric for marketers.

second, our substantial operating cash flow, which we expect to grow in the double digits in 2009, gives us the financial flexibility to execute our plans.

third, we have made important investments in our core computing infrastructure that provides us greater scalability and increases the rate of iteration on core technologies like algorithmic search as much as tenfold. and of course, you’re familiar with our investments in enhanced search technology through panama. these assets-the brand, the audience, the financial strength, and the technology-position us to capitalize on this pivotal moment for yahoo!
and the online marketplace. of course, our most important resource is you: the thousands of creative, passionate and committed yahoos who are executing our strategies to deliver value for users, advertisers, publishers-and stockholders.

as you know, we have taken significant steps to refocus our business on our starting point-must buy strategies. and we’re making headway. starting points: our goal is to grow visits to key yahoo! starting points and properties, by approximately 15% per year over the next several years. and we’re on the move: we are the most visited site in the u.s., and the number of u.s. users grew strongly in the double-digits in 2007 on our yahoo.com home page alone. as our open platform takes shape it will significantly accelerate that growth.

mobile, as an area of focus, is the biggest emerging starting point in the world. with twice as many mobile users as personal computer users and projections for substantial advertising growth in mobile, we have an important competitive edge as the number one mobile destination in the u.s. and we are building a superior mobile experience for yahoo! users to further capitalize on this opportunity.

must buy: at the same time, we will increasingly make online advertising easier and more effective for marketers, opening up new ways for them to address consumers. our right media exchange, acquired last year, is more open and easy to use, simplifying transactions for buyers and sellers of online ad inventory. another 2007 acquisition, blue lithium, brings us best in class performance marketing. while we’ve historically tracked the success of our ad business by focusing on metrics related to our owned and operated sites, our goal is to increase the percentage of the total online advertising demand we touch-to 20% of our addressable market over the next several years, from an estimated 15% in 2007.

our newspaper consortium, is a great example. it has grown to more than 600 newspapers, up from just 264 just seven months ago. combined with ebay, comcast, at&t and others, we are creating a valuable, unique network of premium sites to serve our advertisers.

our key strategies will be enhanced by our adoption of platforms that welcome third party developers and encourage new applications that will enrich the user experience.

finally, beyond our core strategies, there’s the added benefit of our substantial, unconsolidated investments in china and japan: we have major positions in yahoo! japan, the leader in its market and alibaba, which is strongly positioned in china, a market with enormous growth potential.

we have accomplished a great deal in a very short time. yahoo! is a faster-moving, better organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers and developers.

i hope you are as proud as i am of the yahoo! we have built and we continue to build. thanks for your hard work.

jerry

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Intel Corporation (NDAQ: INTC) had a lawsuit filed against it last week alleging patent infringement in the production of the Core 2 Duo microprocessor. The suit was brought by the Wisconsin Alumni Research Foundation, commonly called WARF, which is the private, non-profit organization that coordinates the University of Wisconsin-Madison's patents.

The complaint says that the Core 2 Duo architecture infringes on WARF’s U.S. Patent "Table Based Data Speculation Circuit for Parallel Processing Computer." The patent was based on work done in 1998 by the University’s current head of computer sciences Professor Gurindar Sohir.

WARF’s head legal counsel, Michael Falk, says “The technology of the UW-Madison researchers has been widely recognized in the field of computer architecture as a pioneering invention…significantly enhances opportunities for instruction level parallelism in modern processors, thereby increasing their execution speed.” Intel's Core 2 Duo processor allegedly take advantage of these improvements which allows them to increase performance by 40% while decreasing power consumption.

Falk also claims that Intel was repeatedly contacted as far back as 2001 regarding the opportunity to license the technology but failed to do so. Intel has yet to formally respond to the lawsuit, with a spokesperson for the company only saying that "We dispute their claims and we certainly intend to conduct a vigorous defense.”

Intel is no stranger to such patent infringement suits. In fact, this last October the company settled similar dispute with Transmeta Corp. (NASDAQ: TMTA) over processor technologies in the Core and Pentium lines.

Intel ultimately agreed to pay $250 million to the company. WARF is seeking unspecified damages plus associated costs of the suit. Though Intel certainly seems to plan on putting up a fight, WARF is no amateur when it comes to defending its patents. The organization has obtained over 1,820 patents since its inception and manages more 1,500 licensing agreements worldwide. If history is any guide, it seems likely Intel will eventually pay-up, the only question is, for how much?

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Reddy Ice Holdings, Inc. (NYSE: FRZ) appears to be in great shape after its planned merger with GSO Capital Partners fell through thanks to troubles in the credit market. The packaged ice provider is now set to receive nearly $25 million in breakup fees from the hedge fund while continuing to explore strategic alternatives. This turn of events is music to the ears of shareholders - many of whom saw the acquisition price as grossly inadequate. Shareholders are now hoping that the company will find another potential suitor or other ways to unlock value in the company’s stock. So, what does all of this mean for investors?

The smart money is picking up more and more shares. Shamrock Activist Value Fund was one of the original investors to push for a sale, but failed to be impressed by GSO Caiptal Partner’s buyout price. Now that the bid has fallen through, the firm recently increased its stake to roughly 2.6 million shares, representing a 12.1 percent stake in the company, from 1.8 million shares, or an 8.3 percent stake in the company. Already, this kind of large buying has propelled shares beyond the original buyout price and into new territory ahead of future developments. It looks like many hedge funds and institutional investors see value in the stock.

Reddy Ice itself has also posted some nice financial results. The company said its preliminary results show it will slightly exceed the upper range of its previous forecast for 2007 revenues of between $332 million and $338 million. Net income is set to come in slightly below the lower end of its forecast of between $11.3 million and $15.4 million. The results show continued revenue growth, but with some pressure on margins thanks to the difficult economic environment. However, the $25 million breakup fee should provide a one-time boost to shares while management explores other options to unlock value for shareholders.

In the end, Reddy Ice said that it would continue to explore transactions with GSO and review other alternatives available to the company. The stock continues to trade near its 52-week low while being accumulated by activist hedge funds ahead of another review of strategic alternatives - a recipe for success in many books. Combined, these factors make FRZ a stock that is definitely worth watching over the next few months!

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Wendy’s International Inc. (NYSE: WEN) directors may have to fight for their jobs after Nelson Peltz moves forward with his plans to overtake the company. The activist investor demanded that the board expand in size to 15 directors and plans to nominate six of his own if it is adopted. Otherwise, the 9.8 percent owner says that he plans to nominate four to the board at the next annual meeting - giving him a majority vote. Shareholders are hoping that the activist investor will finally take action to unlock value in the company that has seen its shares drop amid internal problems and economic gloom.

Nelson Peltz’s Triac Companies made a bid for Wendy’s last November, but fell short of an expected $37 to $41 bid and was rejected. Since then, Wendy’s has been evaluating its strategic options and plans to finalize its evaluation very soon. However, the board noted that it wouldn’t exercise discretionary authority to vote on any shareholder proposal received by February 11th. The sudden deadline clearly presented a problem for Peltz’s Trian fund as it now had to rush to propose its new plans. The April 24th annual meeting should shore up to be an interesting one with these new nominations and the results of the strategic options evaluation.

Wendy’s shares have been beaten off of their $42 highs to their current levels of around $23 per share. The downward spiral came as a result of failed M&A talk surrounding the stock combined this the recent economic downturn that has many believing that discretionary consumer spending could slow and hurt fast food chains. The nation’s third largest burger chain recently announced strong fourth quarter earnings that quadrupled from a year ago, but it fell just short of Wall Street expectations. Many believe that Wendy’s will continue to show strong results stemming from recent marketing campaigns and an impressive turnaround.

In the end, shareholders are looking forward to the April 24th annual meeting that should either put the company up for sale or show unlock shareholder value through other means. Peltz’s actions only further encourage the company to take some action or risk being taken over and sold off at any price. After spending $6.5 million studying options for the company, hopefully shareholders will be better off. Combined, these factors make WEN a stock worth watching closely over the next few months!

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Yahoo! Inc. (NDAQ: YHOO) officially rejected last week’s bid by Microsoft Corporation (NDAQ: MSFT) saying that it substantially undervalued the company. The search giant announced that it was continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and remains committed to pursuing initiatives that maximize value for all shareholders. Many analysts believe that Yahoo pegs its true value at around $40 per share, which is substantially higher than Microsoft’s offer but much lower than its share price has been for some time. So, what’s next in this saga?

Yahoo directors are reportedly exploring many options. The first is to attempt to get a higher bid out of Microsoft, which can surely afford it. While this is certainly a possibility, many are not sure just how high the software giant will be willing to go before just making its takeover hostile. Yahoo is also reportedly considering outsourcing its search to Google Inc. (NDAQ: GOOG) in order to increase its cash flow and institute a share buyback or offer its investors a cash dividend. The final option is looking elsewhere for possible suitors, which could prove to be difficult with the current credit market conditions.

Many are now saying that Yahoo may be in talks with Time Warner’s (NYSE: TWX) AOL division. The two attempted to forge a deal in the past, but were unable to agree on some key issues. Shareholders are hoping that the urgency created by the Microsoft merger will now spur them into new talks. Many believe that this offer could be substantially higher, but would likely be a stock offer as opposed to a cash offer. After all, not many have billions in cash in the bank like Microsoft - especially these days.

In the end, Microsoft is simply trying to steal Yahoo from under the table given its extremely cheap stock and poor relative valuations. Microsoft’s offer certainly came at a nice premium that will be hard to reject without more offers, but nevertheless, they are receiving a great deal. Meanwhile, directors at Yahoo are exploring their other options to get at least $12 billion more from Microsoft ($40 per share), or find another buyer who is willing to pay what they believe is a fair value for the company. Regardless, this is definitely a stock worth watching!

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Alliance Data Systems Corporation (NYSE: ADS) shares resumed trading today after the company announced that it had voluntarily dropped its lawsuit against The Blackstone Group (NYSE: BX). The two companies have been involved in a heated lawsuit over a botched acquisition that came amid turmoil in the credit and debt markets. Many shareholders are now speculating that the two have reached an agreement that could help propel shares substantially higher. So, should you look at picking up some Alliance Data shares ahead of any announcement?

Alliance Data, which provides credit card services for retailers, sued Blackstone in an effort to force them to carry out the terms of a May 2007 proposal to buy the company for $81.75 per share ($6.4 billion). The deal fell apart as funding for private equity became more expensie amid turmoil in the debt markets. Blackstone argued that the operational and financial burdens on the company could not be reasonably assumed given these new developments. However, the private equity firm did say that it was committed to working toward the closing of its acquisition of the company.

Alliance Data Systems is currently trading at $55.06, which is substantially lower than the initial $81.75 per share buyout price. The fact that Alliance Data dropped the lawsuit suggests that they were able to work out some kind of an agreement with Blackstone that could resolve the situation. And finally, given the fact that the private equity firm was reportedly looking toward closing the acquisition, that seems to be the most likely conclusion. However, it is highly unlikely that the acquisition will close for the original $81.75 given the deteriorations in the credit market and debt markets.

So, what is a fair valuation? Well, Alliance Systems recently posted a 14% drop in earnings after losses from a business unit sale and from its failed buyout. However, revenues were up about 15% to $602.7 million when estimates were looking from $601 million. Meanwhile, the company maintained that it could generate double-digit organic growth in both operating and adjust EBITDA. It was upgraded shorly thereafter by several analysts and has since risen from $39 per share to its current levels. Many now peg its value closer to $65 to $70 in the event of a buyout - still a healthy premium to the current price.

In the end, Alliance Systems appears to be heading towards a resumed buyout but it still remains very questionable. The valuation in the buyout could be dropped to $65 to $70 per share and investors must multiply that by the probability of a buyout in order to determine how much they’d be willing to pay now. Regardless, this is definitely a stock that it worth watching!

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Tiffany & Co. (NYSE: TIF) shares rose over five percent in today’s trading after it boosted its fiscal 2008 earnings forecast above its two previous forecasts and analyst estimates. The retailer now expects a rise of at least 10% in its worldwide sales based on high-single-digit percentage increases in U.S. retail sales. This took Wall Street by surprise given the company’s recent cut in its full-year earnings forecast after a drop in U.S. sales hit overall same-store sales growth amid a slowdown in consumer spending. So, is Tiffany & Co. a stock that you should consider for your portfolio?

Chairman and chief executive Michael Kowalski noted that sales improved modestly in January month-over-month thanks in some part to continued strength in Europe and the Asia-Pacific region outside of Japan. Consequently, the company is looking to see modest growth in the United States while planning for continued healthy international sales growth throughout the year. Some are insisting, however, that consumer spending in high-end discretionary purchases like Tiffany & Co.’s products may be the next to fall after the apparel industry’s poor results yesterday.

So, will the economy eventually weigh on this company? Well, a recent report by the Federal Reserve showed an abrupt slowdown in consumer credit card borrowing while delinquencies on credit cards continue to rise. Furthermore, recent reports by MasterCard have indicated that many consumers are switching their spending from discretionary items like appliances and jewelry to staples like gas and groceries. These are all clearly bad trends for Tiffany & Co., which relies on such discretionary spending on the high-end in order to jump their sales. This has already affected countless retailers and even some other luxury players, which suggests that Tiffany & Co. is not immune to problems.

In the end, it will be interesting to see if Tiffany & Co. can avoid the problems facing its neighbors and perhaps even stave off any marginal U.S. results in the future with strong international demand. Regardless, this is definitely an interesting company that is worth watching since it could end up outperforming amid larger economic weakness.

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Walgreen Company (NYSE: WAG) is quickly becoming a fundamentalist favorite with its attractive valuation and strong growth amid the economic slowdown. Shares in the drugstore chain had been shot down from their highs of $49.10 to around $32.50 before rebounding to the $35.43 level today. Many analysts believe that the company may be able to sidestep most of the economic turmoil facing other retailers, but the fact that it resides in the category means it will be available on the cheap. So, should you look at adding Walgreens to your portfolio?

Walgreens is currently trading at just 17.5x earnings with a PEG of around 1.17, which is among the lowest valuations in its industry. Meanwhile, the company beats its competition with better gross and operating margins than the industry by around 2-3 percent on both sides. Notably, the company has also had an earnings surprise for three out of the last four quarters, which is what really matters for shareholders. And finally, the drugstore’s balance sheet is also well capitalized with low debt and extra cash.

Walgreens recently reported strong sales in January, which relieved many investors worried about decreased consumer spending. The company noted that same-store sales (the key measure in retail) were up 3.8% while total sales increased 9.6% for the month. Walgreens has recently been trying to increase its sales by adding more high value products and services with its DHL partnership and ink cartridge refilling initiatives. Investors can expect more strong growth from the company going forward.

Walgreens also announced that it opened 39 new stores in January, including two relocations and four closed stores. Management has stated in the past that they are committed to an 8% annual store growth rate in 2008 with 550 new stores opening. More, they expect to open around 600 new stores in 2009 and continue until reaching their U.S. plateau of 13,000 stores. Meanwhile, the company has been expanding abroad after they announced a purchase of 20 Puerto Rico stores. These increases all point to a faster growth story.

In the end, Walgreens is a quickly growing company that appears to be trading at a relatively cheap level thanks to a slowdown in the retail sector. The specialty pharmaceutical retailer segment continues to grow at a solid rate and investors should consider picking up shares while they are cheap. Combined, these factors make WAG a stock worth watching!

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Consolidated-Tomoka Land Company (AMEX: CTO) board members may soon be forced to fight for their jobs after Wintergreen Advisors LLC disclosed a 9.87% stake (and 25%+ economic stake) in the company and nominated three of its own candidates to the board of directors. Shares in the company have slid from their 52-week high of $80.50 to $42.50 before recovering marginally to their current level of $51.29 amid a decline in the U.S. real estate market. Shareholders are hoping that Wintergreen will be able to step in and help turn around the troubled company - and new blood could be just the trick.

Consolidated Tomoka began as a timber company and was perhaps Florida’s largest landowner with over 2 Million acres in the early 20th century. After dropping initially do to increased liquidity, CTO began a steady march upward. Today, CTO continues to own nearly thousands of acres in Florida, including 10,600 in the City of Daytona Beach. In addition, the company owns the equivalent of 284,000 acres of oil, gas, and mineral subsurface interests with 2 producing oil wells on the company’s interests. Management undertook a new strategy in 2000 designed to use the tax-deferred proceeds of land sales to purchase commercial property with long term triple-net leases dispersed over a larger area. Unfortunately, the market collapsed soon after it started paying off…

Investors are now stuck in a limbo after the director of the board declared his retirement and the company failed to offer any meaningful updates on its strategy or direction. Wintergreen is seeking to change that with a set of new directors and a series of proposals. The activist hedge fund urged the board to increase the number of directors in order to ensure that changes are put in place and amend their bylaws to eliminate the need for the board to make proposed changes only with a shareholder vote.

Wintergreen recommended the following actions in their letter to the board:

1. Align management compensation to the success of the company in achieving its stated goals rather than having the bonus and compensation structure revolve around selling properties out of inventory.
2. Review the growth and level of company operating costs in order to explore areas of reduction.
3. Hire outside advisors to develop a strategy to better address the long-term goals of the company.
4. Hire forensic accountants to review past years’ activities to verify that all proper processes and procedures are in place to avoid conflicts of interests between directors, officers and employees.
5. Improve public disclosure to clarify what actions have been taken and are being taken to improve long-term shareholder value.
6. Review company activities to determine whether or not the appropriate authority and responsibility resides in the company officers and the board of directors.

In the end, these proposals would help Consolidated-Tomoka identify the best strategy going forward and make sure that management and shareholder interests are fully aligned. It will be interesting to see if shareholders will support the new proposed directors and how the changes will affect the company going forward. Combined, these factors make CTO a stock worth watching!

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Fortune Brands, Inc. (NYSE: FO) has long been hailed as one of the best fundamental plays in the market by value investors, but when can investors expect a return to former glory? The diversified conglomerate holds premium brands that are widely considered monopolies in their respective markets, but investors continue to value the company at a meager 12x forward earnings. The company is trading down 20% on the year and continues to decline amid economic weakness and a decline in consumer spending. So, is this stock on sale right now?

Fortune Brands controls many of the most recognizable brand names in the industry. Its spirits and wine division controls Jim Bean, Makers Mark, Knob Creek, Sauza, Courvoisier, Dekuyper, Clos du Bois, and Canadian Club. Its hardware division owns Moen, Aristokraft, Therma Tru, Master Lock, Omega, Waterloo, Kitchen Craft, and Diamond. Its golf division owns Titleist, Foot Joy, Pinnacle, Cobra, and Scotty Cameroom. Combined, these brand names give this company a sustainable competitive advantage over others operating in the area over the long run.

Many investors are shying away from the company because 44% of its gross revenues come from hardware and home sales - not the best market in the world right now. Others are concerned with the company’s relatively high debt load, which management has said it would begin paying down. Fortunately (no pun intended), the company’s PEG ratio stands at a reasonable 1.44 given the slowdown while its debt-to-equity ratio stands at a manageable 0.769. It is likely that earnings will slow, but much of the slowdown may have already been built into the price. Furthermore, the company is trading at a substantial nearly 50% discount to its enterprise value.

Fortune Brands has also taken action to buy up cheap brands at today’s depressed levels. Recently, the company announced that it plans to purchase Absolut to supplement its existing wine and spirits division. The most is expected to accredit earnings within a reasonable amount of time and should help boost shareholder value. It will be interesting to see if the company makes any further acquisitions; however, it is important to keep an eye on their level of debt in the meantime.

In the end, Fortune Brands is a strong company that is caught in a decline thanks to the tough housing market and a decline in consumer spending. A lot of the weakness in its earnings has already been priced into the stock as it trades with a forward PE of just 12x and a PEG of just 1.44. Management remains committed to paying down the debt on the stock while eyeing acquisitions in today’s cheap markets. Combined, these are smart moves that could end up generating substantial shareholder value over the next few years!

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SIMTEK Corporation (NDAQ: SMTK) shares continued their rise today after Cypress Semiconductor (NYSE: CY) announced that it would explore a potential acquisition of the company. Cypress offered few details other than noting that discussions could result in a transaction such as a merger, acquisition or stock, or purchase of a division or business. SIMTEK shares jumped over 60% on the news, despite the fact that there has been no set offer or assurances that a deal will even be made in this difficult credit environment. So, what should you do?

SIMTEK shares are trading well off their 52-week highs of around $6.71 after the company cut its revenue and profit forecasts in late October. Shares are now trading at a five year low and Cypress already owns a 6% stake in the company with warrants that could boost its interest to 19.3% if exercised. Cypress also stands to save money on royalty payments to SIMTEK related to their co-developed 4-megabit chip scheduled for delivery next quarter. Combined, these factors could make for a relatively cheap acquisition in terms of cash outlay at this point.

SIMTEK chief executive Harold Blomquist said his company had no warning that Cypress was interested in an acquisition but was not surprised given their very healthy working relationship. Many analysts are not all that surprised either given the fact that the two companies are joint development partners and suggest that the company could sell for between $3.15 and $3.50 per share. Given the health of the credit market and the fact that this is a strategic buyer, it is unlikely that any other bidders will emerge.

In the end, this is great news for SIMTEK shareholders who saw their shares hit new five year lows just days ago. Cypress’ acquisition would make a lot of sense from a business standpoint and would come at a very cheap price while SIMTEK shareholders would be rewarded with a fair value for their stock. Combined, these factors make SMTK worth watching!

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IAC/InterActiveCorp. (NDAQ: IACI) shares plunged today after the company announced that it had lost $369.9 million during the fourth quarter due to higher taxes, difficulty in its mortgage referral unit and costs associated with the proposed spin offs of its five business segments. The news has disappointed many shareholders, but underscored the need for the planned spin offs to take place in order to unlock value for shareholders and increase the performance of the company’s individual units.

“There is good news and bad news this quarter — the mix of which is another reason why our previously announced plans to reorganize IAC into five independent public companies makes more and more sense,” said CEO Barry Diller. However, some are beginning to question his credibility after losses continue to pile up and shareholder sentiment is quickly turning against him. One analyst went so far as to say that “there’s probably no momentum to maintain Barry Diller in his current role”.

IAC proposed spinning off four of its divisions to create five independent companies back in November of last year. The spin offs would include its HSN home shopping network, Ticketmaster ticketing service, Interval time-share business, and LendingTree mortgage referral unit. All of the remaining assets would be kept under the current IAC business segment. The results today only confirmed, in many eyes, that such drastic actions needed to be taken in order for the companies to compete. A separation would allow for better management incentivization, easier access to capital and improved operating efficiencies.

Unfortunately, there are many barriers that still remain before any splitup can occur. First, the company is involved in ongoing litigation with Liberty Media, who is attempting to clock the breakup unless the deal is structured to give them control of the new companies. Liberty currently holds 30 percent of IAC and 62 percent of its voting power. Liberty claims that Diller, who controls the voting rights of Liberty’s IAC shares through a proxy agreement, is contractually obligated to vote against the spin off that it opposes because its own stake would be further diluted.

IAC is also facing problems with its LendingTree division, which was forced to write down the value of its goodwill and intangible assets by over $475 million amid continuing difficulties in the mortgage markets. Many believe that any sale of this division while the mortgage markets are depressed would result in less-than-adequate premiums; after all, why sell when the segment is trading at a historic low? IAC also wrote down the value of its entertainment unit by over $57 million as the company sold fewer Sally Foster products and coupon books.

In the end, IAC still has many issues to face before it can even consider spinning off its various business segments. In addition to a legal battle, the company must work to improve profitability in its segments in order to lift the potential valuations of these units and show that they can remain a going-concern as independent companies. After all, once a new company’s price-to-earnings ratio is set at its initial offering, it’s a lot harder to increase in the future even with spectacular results. Combined, these factors make IACI a stock worth watching!

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The AOL-TimeWarner merger never was a match made in heaven, but now they may be preparing to divorce. Time Warner Inc. (NYSE: TWX), parent company of the two divisions, announced a broad restructuring plan today that would separate AOL’s internet-access business and potentially reduce its holdings in the company’s cable affiliate. The news comes after the company posted somewhat disappointing earnings - driven by cable television - and guided lower for the year. Shares moved up, however, on news that the company may finally be ready to undergo the drastic restructuring that it so desperately needs.

Chief executie Jeff Bewkes, who assumed his post earlier this year, laid out his turnaround plan alongside Time Warner’s earnings this quarter. The new plan calls for a separation of AOL’s internet-access business, a reduction the firm’s 84% stake in Time Warner Cable Inc. and aggressive cost cutting measures across the board. The news comes after the company reported that its fourth quarter net income slid 41% (due to gains last year), but met expectations with the help of blockbuster hits “Harry Potter” and “I Am Legend”. Meanwhile, the company’s stock sits between its 52-week highs and lows as investors are again preparing to wait.

Perhaps the most interesting portion of Time Warner’s turnaround plan is the restructuring efforts surrounding AOL in particular. Many believe that this could mean a sale of spin off of AOL’s internet-access business, which has been losing customers and seeing lower revenues as it continues to drop its subscription fees. It could also be a precursor to a merger with another online company in order to make it more competitive against rivals Google and the new “YahooSoft”. Others believe that Time Warner may be leaning down its AOL business in order to encourage a bid, fresh after Microsoft’s blockbuster bid for Yahoo. Perhaps a strategic acquisition or two would make it a key player worth a second look by Google or others.

In the end, Time Warner’s restructuring is long overdue since its failed merger all those years ago. It will be interesting to see how Bewkes takes action to turn around the troubled company and restore it on a path of profitability. Combined, these factors make TWX a stock worth watching!

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E*Trade Financial Corporation (NYSE: ETFC) shares rose today after insiders revealed a sharp increase in their holdings of the troubled online brokerage. The stock is more than 80% off of its highs primarily as a result of its subprime exposure, which led to speculation that it may be forced to shut its doors. In reality, the brokerage had plenty of liquidity and no real problems with its portfolio other than a write-down. Unfortunately, the speculation itself led to a very real exodus of its clients to supposedly “safer” brokers. The company has since unleashed an impressive turnaround that has many market participants bullish on the stock - including insiders!

E*Trade insiders began accumulating shares at an impressive rate. Ten insiders, including its chairman and acting chief executive, purchased 474,761 shares in the company last week alone. Notably, seven of these insiders made the purchases through open market transactions - that is, they purchased stock like anyone else with their own cash. The bulk of the recent purchases came after the company announced its turnaround plan, indicating a strong internal confidence in the plan they’ve laid out for the franchise. And so far, things seem to be paying off as shares have made a slight recovery off of their lows.

E*Trade’s turnaround plan hinges on its ability to regain customer confidence. The brokerage ran its annual superbowl ad this year to inspire such confidence, proclaiming that it is opening 1,000 new accounts daily. The fact that so many new customers are arriving and that they could afford that superbowl ad may be just what people need. In the end, its the clients that make the company, and if they can hit their targets, then there shouldn’t be any problems ahead. Institutions have also begun to buy into the turnaround as Maybach Financial added the company to their watchlist, and many more are sure to follow.

These factors make E*Trade a compelling buy at these levels. The brokerage has a book value of $6.13 per share while trading at only around $5.00 per share! Moreover, if we assign an industry multiple to this company (assuming it can turn itself around), we’d find a low end valuation of around $10.00 per share - roughly double where it is now! Opportunities like this one are found in companies that were beaten down on fear where very little was affected fundamentally. This has made the stock a compelling fundamental play for many investors at these levels.

In the end, if E*Trade can regain its customer base, then it is essentially right back where it started but for a lot cheaper than the write-down warranted. Insider buying is indicating that many are confident in a turnaround while 1,000 new accounts per day is certainly a point worth considering. Combined, these factors make ETFC a stock worth watching closely!

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Delta Airlines (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) may be moving away from deal talks that seemed almost certain just weeks ago. The two airlines received approval on January 11th to begin merger talks and rumors quickly surfaced that the negotiation was moving quickly as they hammered out the fine points. However, two stories today seem to contradict such rumors as the two airlines appear to be moving away from any possibility of a merger. Many shareholders still insist that the two airlines could combine as early as in the next two weeks amid pressure from institutional shareholders and investors looking for a change.

Comments by Delta officials to their hometown Atlanta Journal-Constitution newspaper that the airline had a strong standalone plan and was not afraid to take the lonely path caused the speculation that the deal was ill-fated. President Ed Bastian even told the paper that the company would not do a deal unless it filled holes in the airlines network; otherwise, it would simply be a drain on resources and not worth the effort. Meanwhile, TheStreet reported that Delta has recently been looking elsewhere towards targets like Continental Airlines Inc. (NYSE: CAL). However, nothing has been confirmed and we’ll have to wait and see the truth behind the story.

A wave of bankruptcies and rising oil prices has led to much speculation of consolidation in the airline industry. After all, it has become increasingly difficult for airlines to eek out a profit with costs soaring and competition rising. Many believe that the only viable option is to merge with competition in order to expand routes and increase economies of scale. Larger airlines can purchase more materials in bulk and realize significant cost savings while also working to eliminate many employees that have overlapping jobs. However, failed mergers can be much worse than never having done anything at all. Consequently, it is very important to practice due diligence.

In the end, it will be interesting to see where these airlines end up over the next few months. For now, it remains likely that Delta will continue to pursue Northwest while other targets may include Continental. Regardless, the airline industry remains full of stocks that are definitely worth watching over the next few months!

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Sun-Times Media Group, Inc. (NYSE: SVN) shares rose over 15 percent after the company announced that it has begun an evaluation of strategic alternatives to enhance shareholder value. Specifically, the troubled Chicago media company is seeking a joint venture or outright sale of the company. The news comes as no surprise to many as activist shareholders have been pushing the company towards a sale for some time. Shareholders are hoping that the move will help unlock value after more than an 80% decline in value.

“Sun-Times Media Group is very fortunate to have a solid portfolio of publications and websites that deliver the highest quality journalism to the communities we serve and great value to our advertisers. The steps that we’ve taken in the past year are designed to make sure that this is true today and will continue into the future. Our Board’s decision to explore strategic next steps now is the right thing to do to ensure the future of the Sun-Times Media Group publications and Web sites and to generate the highest value for our shareholders.” said Cyrus F. Freidheim, Jr., Sun-Times Media Group Chief Executive Officer.

Sun-Times Media was pushed towards a sale by many investors predominantly led by K Capital Management, which owns nearly 10% of the firm. The hedge fund believes that the company owns very attractive community newspapers but is too small to operate as an independent public company. That is, the costs of being a public company greatly outweighed the benefits in this case due to the firm’s small size. As a result, the assets have moe value to a buyer than they do as an independent company and a sale was the best option available.

Sun-Times began to cut costs two months ago in order to make itself more attractive to a buyer and succeeded in saving $50 million. The company’s strong portfolio of newspapers should make it attractive to an outside buyer, but many fear that the declining newspaper industry and tight credit market may preclude any super-favorable sale from taking place. After all, it would be difficult to find a financial buyer in today’s market that would buy a newspaper company. However, there are plenty of strategic buyers that may be interested and that’s what everyone is banking on.

In the end, it will be interesting to see if a transaction will take place. We should begin to at least see the level of interest over the next month as the company works to find and organize potential bidders. Combined, these factors make this company one that is definitely worth watching over the next few months!

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All eyes are on BHP Billiton Limited (NYSE: BHP) and Rio Tinto plc (NYSE: RTP) this week as a deadline for a mega-merger between the two quickly approaches. The UK Takeover Panel required that BHP submit a formal bid for Rio Tinto by February 6th or it will not be able to make any future bids for at least six months. The current offer is a 3-for-1 share deal that Rio Tinto rejected as bid that grossly undervalued their company. Many shareholders believe that the mega-merger may be stalled as the deadline quickly approaches.

BHP is a $190 billion company with mining interests all over the world. It specializes in petroleum, aluminum, base metals, stainless steel, iron ore, manganese, coal, and diamond and specialty products. Meanwhile, Rio Tinto is almost as large at $130 billion and it specializes in aluminum, copper, diamonds, energy products, gold, industrial minerals and iron ore. Combined, these two companies would corner 38% of the iron ore market, 6% of the copper market, and become the world’s largest coal supplier. As a result, many eyes are on this potential merger.

Interestingly, there may be others that are also interested in Rio Tinto. Alcoa and Aluminum Corporation of China announced the joint acquisition of 12% of the company just recently. The two described the acquisition as a “strategic stake” and reserved the right to make a bid for the company if a third party made a firm offer. Presumably, if BHP made an offer, then a bidding war may ensue for Rio Tinto, which is great news for its shareholders but potentially bad news for many others.

In the end, it will be interesting to see how this situation unfolds. BHP has its own earnings to deal with this week, but the February 6th deadline is quickly approaching and they may be forced to act if they want to make a serious attempt to buy Rio Tinto. Combined, these factors make this stock one that is definitely worth watching!

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J.C. Penney (NYSE: JCP) has caught the eye of billionaire activist Carl Icahn who reporedly bought up a substantial stake in the company. The Deal Journal reported that the retailer may be among Icahn’s top five holdings, meaning his stake could run into the hundreds of millions of dollars. The move follows that of other activists, like William Ackman, into retailers that have been beaten down by a slowdown in consumer spending. Shareholders seem to be mixed on the news as shares started the day higher only to drop more than five percent.

J.C. Penney shares are up over 25% off of their highs along with many other retailers that have been helped by rate cuts and a tax rebate that promises to at least temporarily boost spending. However, many still see J.C. Penney as a cheap stock at these levels. The stock has moved down 44% during the past year after same-store sales fell 7.5%, which dropped its price-to-earnings multiple to just 9.5x last-twelve-months earnings. This compares to an industry average of 14.7x, making J.C. Penney one of the cheapest in the industry.

Activist and value investors alike have been flocking to the retail sector recently amid cheap valuations. Icahn made his interest clear last month when he said that recent declines in industry shares had made them “very cheap”. Meanwhile, other activists like William Ackman have accumulated significant economic and reported stakes in Target Corporation (NYSE: TGT) and Sears Holding Corporation (NYSE: SHLD). Indeed, the multiples of these retailers continue to trail the overall market, while their real estate and credit card assets continue to draw interest.

In the end, it will be interesting to see how this story plays out. Retailers are definitely cheap, but many believe that it may be justified given the substantial problems facing the industry. Activists like Ackman have very specific reasoning behind their investments, but Icahn may face problems if he is simply purchasing because they are undervalued. The first lesson in high-return investing is to find a catalyst - otherwise, stocks can stay cheap for awhile. What this catalyst is remains to be seen, but this is definitely a stock worth watching!

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The Greenbrier Companies (NYSE: GBX) shares soared more than 20 percent today after Carl Icahn disclosed a substantial stake in the company and discussed the possibility of a combination with American Railcar (NDAQ: ARII). The news comes as shares of the railroad company sat near 52-week lows, beaten down by poor earnings and growth. Many shareholders are hoping that the billionaire activist will be able to unlock value in both companies through strategic alternatives.

Carl Icahn currently holds a 53.7% stake in American Railcar and aggressively purchased shares of Greenbrier through its subsidiary Longtrain. Longtrain purchased the full 1,530,000 share position between January 8th and January 25th and prices ranging from $17.60 to $19.54 per share. Many are speculating that the activist is moving quickly to acquire the company at bargain-basement prices after amassing a 9.45% stake in just a month. It will be interesting to see how ready shareholders will be to sell at these levels.

Greenbrier confirmed that it had received Carl Icahn’s Schedule 13D filing and is committed to acting in the best interests of Greenbrier shareholders and other constituencies. However, the board offered no additional comments at this time as they are reviewing the information carefully. It is worth noting that Carl Icahn is not opposed to taking hostile action when necessary to unlock value in his investments, so the board will likely pay attention to anything that he says in future communications.

In the end, the railroad industry has been recovering but still suffers from many fundamental issues. Carl Icahn’s investment in American Railcar alongside investments by many other value investors suggest that the industry may be undervalued. As a result, Carl Icahn’s (assumed) planned purchase of Greenbrier couldn’t come at a better time as shares sit near 52-week lows. It will be interesting to see how all parties respond when something becomes of this situation. Combined, these factors make Greenbrier a stock worth watching!

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RealNetworks, Inc. (NDAQ: RNWK) share rose sharply today after the digital media company announced a new partnership with Yahoo Inc. (NDAQ: YHOO) under which Yahoo! Music will now be handled by Rhapsody America. The move will increase Rhapsody’s user base by a substantial number - a move that RealNetworks hopes will boost its own service and drive revenues. Shareholders shared the optimism today as they hope that the move may be just was RealNetworks needs to boost its share price.

RealNetworks currently has around 2.7 million subscribers, but this new partnership should bring that number up to around 23 million subscribers. This substantial increase will definitely increase Rhapsody’s exposure, but the margins may end up suffering (as a large cut likely goes to Yahoo). Interestingly, Yahoo! Music was once considered to be the Rhapsody killer, but it now appears that Rhapsody is the one doing the killing. Yahoo! Music subscribers will be switched over to Rhapsody’s $12.99/month plan when their existing contracts expire.

The new partnership is welcome news for shareholders who have seen the value of their stock slip in recent times. Shares are down around 42% since their highs in the beginning of 2007 amid poor earnings and questionable acquisitions. Many are bullish on this partnership that could prove to give shares some upside. However, there is one big problem in the way - Microsoft. It will be interesting to see if this partnership stays in tact post-acquisition given RealNetwork’s poor relationship with Microsoft.

In the end, this deal is great news for both Yahoo and RealNetworks. Yahoo benefits by being able to shed a relatively non-profitable division while still being able to monetize it while RealNetworks has substantially increased the size and value of its network of users. There is some risk that this partnership may fall through with the Microsoft acquisition, but the situation is still one that is definitely worth watching!

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MBIA Inc. (NYSE: MBI) may now hold the record for the world’s longest conference call, which came in at something near four hours with more than 200 questions thrown at the troubled bond insurance company. Luckily, it paid big dividends as shares rose more than 30% from an opening level of $11.80 to $15.90. The marathon call came after activist investor William Ackman sent a long letter detailing problems facing bond insurers and MBIA and Ambac in general. Shareholders are now bullish on the stock once again, despite a negative credit watch from the S&P.

MBIA’s main point seemed to be that the credit-default swaps that they write don’t behave the same way that credit-default swaps that banks write. Notably, they cannot be accelerated, except by the firm, which means that any claims will trickle out rather than be all subjected to be paid at once. However, even if the have liquidity concerns under control, that doesn’t mean there won’t be problems with solvency. Many also saw the CFOs attempt to showing lots of excess capital unconvincing as he was forced to guess (like everyone else) at the level of capital that ratings agencies would require going forward. However, he did say (perhaps ironicaly), “It is virtually impossible to imagine a circumstance under which MBIA would become insolvent.”

Many continue to wonder how a company with a market cap of $2 billion that just announced that it lost $2.3 billion last quarter was able to have its share price soar as a result. Some are speculating that it could be a short squeeze while others. The CEO insisted that MBIA would not get taken over by New York State regulators because it would have to be insolvent and the company said it would show excess capital of billions above NYS’s capital requirements. However, the accuracy of these and other statements and the health of MBIA remain to be seen. Regardless, this is definitely a stock worth watching!

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Google Inc. (NDAQ: GOOG) shares fell today after the company announced disappointing fourth quarter earnings showing slower growth than analysts predicted. The search giant earned $4.43 per share on revenue of $3.39 billion compared to analyst expectations of $4.44 per share on revenues of $3.45 billion. The company continues to feel the heat from rising traffic acquisition costs and operating expenses that are putting pressure on its margins. Shareholders sold on the news sending shares down more than 9 percent in early trading.

Google’s traffic acquisition costs have been increasingly lately due to the rising guaranteed payments the company owes through advertising deals to MySpace, Ask.com and others and without operating leverage. There is also larger concern that online ad spending may be hurt by any recession in the United States and abroad. Since Google derives the vast majority of its revenues through Google AdWords, this could spell trouble for the company. And finally, there is also the rising concern over declining keyword costs that has affected the entire industry as it matures.

Google is taking some steps in the right direction, however. First, the search giant is finally starting to control its head count by hiring just 6% over the third quarter. This was a major problem last year that is one of the culprits behind its high operating expenses. Secondly, Google generated more than 50 percent of its traffic internationally and there has been substantial improvement in the international markets that should drive pay-per-click growth.

In the end, there are no short-term catalysts that will help Google so investors may want to shy away from the stock until things improve. It will also be interesting to see how a combined Microsoft-Yahoo will affect the search giant that currently commands a 58% market share. Combined, these are all factors that make Google a stock worth watching!

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Google Inc. (GOOG)
Microsoft Corp. (MSFT)
Yahoo Inc. (YHOO)

Yahoo Inc. (NDAQ: YHOO) shares are up over 40 percent today after Microsoft Corporation (NDAQ: MSFT) revealed a $31 per share friendly takeover offer for the troubled web portal. The cash-or-stock proposal represents a 62% premium to the closing price of Yahoo shares yesterday - a compelling value by any financial measure. Microsoft believes that this combination would enable them to better capitalize on web and display advertising trends. Shareholders applauded the deal sending share substantially higher, but still left some room for opposition.

“Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers,” said Microsoft in their letter to Yahoo. “We would value the opportunity to further discuss with you how to optimize the integration of our respective businesses to create a leading global technology company with exceptional display and search advertising capabilities.”

The offer comes at an opportune time as Yahoo shares have been beaten down and many have lost faith in the company. Shareholders have been looking for an exit strategy that has clearly presented itself in the form of a cash-rich buyer like Microsoft. Meanwhile, employees have been looking for new direction and job security, and Microsoft has already promised “significant retention packages” to “engineers, key leaders and employees across all disciplines”. The offer is also a great deal for Microsoft as Yahoo shares are available at bargin basement prices!

A combined Microsoft and Yahoo would have revenues of $65 billion per year with net profits of around $17.6 billion per year and about 90,000 employees. Perhaps most importantly, it would command a 32.7% marketshare in the U.S. search industry. This is still behind Google’s 58.4% by a wide margin, but it does represent a substantial step in the right direction. Microsoft’s more organized culture, cash in the bank, and talented engineers may be just what Yahoo’s technologies need to get off the ground and compete.

In the end, there is still a lot of question as to whether this deal will even go through as planned. Yahoo’s Terry Semel stepped down from the board yesterday, presumably because of this deal taking place. Whether it was in protest or because he felt it was a “sure thing” remains to be seen, but many shareholders are also likely to oppose an acquisition at such historically low levels. However, many others are simply looking for an exit and may take up Microsoft stock to benefit from future growth. Regardless, this is definitely a situation worth watching!

Related Companies
Google Inc. (GOOG)
Microsoft Corp. (MSFT)
Yahoo Inc. (YHOO)