Shares of ACA Capital Holdings (NYSE: ACA), which have tanked nearly 50 percent since June 20 amid concerns about the company's exposure to the subprime mortgage market roared back today, gaining almost 16 percent.

Perhaps this was short covering. Perhaps some positive comments from the company's largest shareholder Bear Stearns (NYSE: BSC) Merchant Banking, helped as well. Regardless, there is no way to know for sure if this rally is sustainable though Keefe Bruyette & Woods defends the stock saying "in our worst-case scenario, we think the stock has a double-digit valuation," according to the Times.

ACA has written off billions of dollars worth of insurance on financial assets and manages collaterized debt obligations on billions more. The New York Times noted that some of the collaterized debt obligations or CDOs. ACA manages for others were mentioned by bond rating agencies as potential candidates for a downgrade though the exact impact this action will have on ACA isn't clear.

Yesterday's 22% decline in the stock was triggered after S&P said it was considering downgrading various securities issued by four CDO's that were managed, but not owned, by ACA, citing "the increased probability of default" for the underlying mortgages. The company also said it could lose money on 2006 and 2007 contracts tied to $4.5 billion of subprime securities.

Nonetheless, The CEO of Bear Stearns Merchant Banking, John D. Howard said in a statement, "We have great confidence in ACA's management team."

Remember there's plenty at stake for the Wall Street firm. As Bloomberg News notes, Bear Sterns last month agreed to extend a $1.6 billon loan to one of its two hedge funds that "almost collapsed because of CDO bets."

They must have some confidence. The fund owns a 27.6% stake in ACA Capital Holdings and in the past month has lost almost $90 million in market value.

Ed Whitacre, the current AT&T (NYSE: T) CEO, has been running one or more of the Bells for a long time. He ran SBC since 1990 when it mergered with AT&T. In June, he hits retirement age. To no one's surprise, his No.2, Randall Stephenson, will move up to Chairman & CEO. Stephenson was chief operating officer at SBC before the merger. He was both controller and CFO before he took over operations.

Whitacre goes out on top. He engineered the merger between SBC and AT&T, and then took over BellSouth again. He has come close to re-assembling the original AT&T. He leaves with a $158.5 million retirement package.

Over the last two years, AT&T's share price is up almost 70%. The merger with BellSouth has gone well. AT&T's first-quarter 2007 reported net income was $2.8 billion, up from $1.4 billion in the first quarter of 2006, and reported earnings per diluted share were $0.45, versus $0.37 in the year-earlier quarter. The company's wireless operations, renamed AT&T Wireless, did particularly well.

One question will dog Whitacre's legacy. It is whether he moved quickly enough into fiber-based high speed internet to take TV and broadband customers away from cable companies. Cable has been converting large numbers of telecom voice customers to VoIP.

But, that is Stephenson's problem now.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

AT&T, Inc. (NYSE: T) is the favorite conservative investment for 2007 from technical analyst Richard Sparks. The editor of Trend Maximizer observes, "The matronly telecom icon that was broken apart in 1984 -- and then merged with SBC Communications -- is making noise once again.

"AT&T has agreed to acquire southern Baby Bell BellSouth Corp. (NYSE: BLS) in a deal valued at $67 billion. The new T now boasts more than 49 million access lines in service. Cingular Wireless, the company's wireless joint venture with BLS, is the leading U.S. wireless carrier with more than 54 million subscribers in the fold.

"The firm reported better-than-expected third-quarter earnings of 63 cents per share on October 23. These results beat the consensus analyst estimate by five cents. Revenue rose 13.5% on a year-over-year basis to $21.36 billion, versus a consensus estimate of $21.33 billion. This news was met by at least one brokerage firm making positive comments and raising its price target for the stock.