This Day On The Street
Continue to site
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

Why MBIA Is A Dangerous Stock: Street Whispers

NEW YORK ( TheStreet) -- MBIA (MBI - Get Report) appears to have a strong case in its legal battle against Bank of America (BAC - Get Report), though that may not be enough, and, like many "back from the dead" stocks, investors would be wise to exercise caution.

MBIA shares gained 4.7% Thursday, and at one point were up much more than that, as Reuters and Bloomberg reported on a day-old research report from Creditsights' Rob Haines that repeated one of several wild guesses BTIG Research's Mark Palmer had made a few days earlier.

That wild guess proved wrong, we learned after the market closed, and it appears MBIA shares will open sharply lower Friday. (Another one of Palmer's guesses proved correct.)

A quick refresher on what's at stake. MBIA claims Bank of America owes it several billion dollars because of faulty mortgage backed securities it sold and which MBIA insured. Bank of America, meanwhile is using every legal means at its disposal to fight MBIA--from challenging a split up of the company, to trying to run out the clock on the insurer in the hope it will run out of cash and stop fighting, to other, more complex maneuvers such as fighting over bonds the company has issued and is trying to amend.

Only a small number of analysts cover MBIA. The three whose research I have seen regularly--BTIG's Palmer, Creditsights' Haines and Harry Fong of MKM Partners, are all bulls.

While publishing analysts tend to be bullish in general, they may be particularly so when it comes to a company like MBIA that much of Wall Street has written off as highly speculative. Many analysts who used to follow MBIA dropped coverage after the crisis left it reeling from its massive exposure to subprime mortgage bonds it insured.

That led other analysts, such as BTIG's Palmer, to take a fresh look. However, if analysts don't see promise in a company that is struggling for survival, they aren't likely to start covering it. As a result, there are few if any bears who are thinking carefully about MBIA (or other such highly speculative stocks, for that matter) and sharing their views with the public.

The bullish analysts make solid arguments. They follow the extensive court proceedings and take the judges' temperatures. They note that a giant like Bank of America would not fight so hard if it didn't believe it was vulnerable and the stakes were high. They calculate how much cash MBIA has left and decide it has enough to keep fighting for a while. They urge investors to buy the bonds, taking a loss if necessary, to profit on the stock.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $17.44 -0.17%
MBI $6.77 -0.15%
AAPL $118.03 -0.71%
FB $105.41 -0.31%
GOOG $748.15 -0.02%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs