This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

MBIA's Anti-Bank of America Bet Cheapens: Street Whispers

Stocks in this article: MBIBAC

NEW YORK ( TheStreet) --Investing in MBIA (MBI), which will report third quarter earnings after Wednesday's close, is essentially a bet Bank of America (BAC) will be forced to pay at least $2 billion to settle a lawsuit brought by the monoline bond insurer over bad mortgages underwritten ahead of the 2008 subprime crisis.

That bet has cheapened by about 12% since Oct. 17 and BTIG analyst Mark Palmer, who has been bullish on MBIA for several months, sees no meaningful reason for the selloff.

"We've seen a number of different high-beta financials trade off during the past couple of weeks, and MBIA is in that category," Palmer wrote in an email exchange following Friday's close. "When the market is selling off, some funds looking to raise cash will punt the names that are nice options to have, but not necessarily core to their portfolios. Again, MBIA is in this category," Palmer added.

Palmer has also observed that MBIA "tends to underperform as its earnings release approaches. Most of the developments that would be positive for MBIA occur between the earnings releases."

The analyst sees "not a lot of upside in the earnings release, but some potential downside." Therefore, he argues "investors lighten up on MBIA going into earnings and then look to buy it back once they see that the company has preserved its optionality."

Getting in ahead of that trade offers significant gains, if the action surrounding MBIA's second quarter earnings release repeats itself this quarter.

MBIA shares fell from $10.71 following the July 19 close to $8.76 at the Aug. 8 close. MBIA released earnings after that close, and opened the next day at $9.91--13.1% higher, once MBIA had, to borrow Palmer's formulation , "preserved its optionality." The shares closed at $10.41 two full trading days after the release--a gain of 18.8%. They reached a recent high of $12 on Sept. 14

Now, going into third quarter earnings, the shares are back down at $9.72. If MBIA suddenly shows after Wednesday's close that it may not be able to hold out to keep fighting with Bank of America, the downside would likely be severe--possibly as much as 90%. It is more likely, however, that MBIA will show it is still in the fight. At least that's what Palmer believes and what Morningstar Fund Manager of the Decade Bruce Berkowitz is betting . Whether or not you want to make that bet, it sure looks better at $9.72 than it did at $12.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs