NEW YORK ( TheStreet) -- MBIA ( MBI) appears to have a strong case in its legal battle against Bank of America ( BAC), 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.
Still, there isn't really anyone on the other side except Bank of America's lawyers, whose arguments can only be found amid untold thousands of pages of court documents. Many of those arguments are difficult for non legal experts to assess. For example, Bank of America argues MBIA didn't care the mortgages it was insuring were poorly executed until they dropped dramatically in value. That sounds plausible enough. But whether MBIA did care--and whether it matters if it cared or not--will be up to a judge to determine. But much of the battle isn't about making coherent arguments as it is about strategic maneuvering. MBIA tries to amend its bonds. Bank of America tries to buy the bonds to block MBIA. MBIA buys some of the bonds to block Bank of America from blocking it. Bank of America argues MBIA's block was improperly executed. Neither side is sharing its strategy with the public, for fear of tipping its hand, so it's very difficult to know which will prevail. The analysts--Palmer, Haines and Fong--all believe MBIA is a double or better, and that's probably right if it gets the $3 billion or so they believe it has coming. If they're wrong, however, the downside would likely be severe. It's hard to know, however, without anyone arguing on the other side. -- Written by Dan Freed in New York. Follow @dan_freed