You don't have to be the world's most optimistic gambler to invest in Owens Corning's (OWENQ) stock these days.

But it sure helps.

After flatlining below 60 cents over the past two years, shares in the bankrupt building materials manufacturer have skyrocketed over the past month, rising from a 54-cent close on Nov. 2 to more than 10 times that price -- $5.71 -- last Tuesday.

It's

tempting to dismiss the run-up as nothing more than the work of momentum-starved daytraders. After all, shareholders of bankrupt public companies nearly always end up with worthless stock in Chapter 11 reorganizations, and Owens Corning's current reorganization plan envisions that outcome.

But it's not completely irrational to believe that current Owens Corning shares will have some value after the bankruptcy proceeding -- any more than it's completely irrational to believe your picks will come up in a Mega Millions lotto game. The odds look long, but it's still possible.

Sliding off its Nov. 30 peak, Owens Corning stock closed Monday at $3.50.

Law and Order

At issue is the size of the liability that led Owens Corning to filefor bankruptcy in October 2000 -- personal injury liability stemming fromthe company's involvement in asbestos.

Chiefly, the issue is whether the Republican-dominated Congress and executive branch will pass a law that would dramatically reduce the size of the asbestos liabilities that the company faces. The possibility that the judge in the case might reduce the liability may be at work as well.

The stock's rise "is all about the prospects for asbestos legislation," says Andrew Rahl of Anderson Kill & Olick, an attorney representing Owens Corning's prebankruptcy bondholders and trade creditors. "People assumed if the Democrats won, there would be no legislation."

Currently, the operative number being kicked around for the size of Owens Corning's asbestos liability is $16 billion. (That's the number that the asbestos claimants have officially set as the figure they seek to guarantee their support of Owens Corning's current reorganization plan.) With Owens Corning having an enterprise value, by one estimate, of $7 billion, that asbestos liability would leave current shareholders out in the cold; the current and future asbestos claimants would get control of the company, and the holders of the $4 billion in nonasbestos-related debt and obligations would get partial payback.

In the Pink
November rally for Owens Corning

The apparent bet is that some legislative solution will cut that asbestos liability to some manageable combination of immediate and future payments -- an obligation that would leave some of the $7 billion enterprise for shareholders after covering the $4 billion nonasbestos debt and other expenses, such as significant interest payments on the prebankruptcy debt to cover the period the company was in Chapter 11. (At Friday's $3.83 price for Owens Corning stock, the implication is that $210 million would be leftover for shareholders.)

Grappling

But an investment strategy based on the hopes that future legislation will erase obligations in an ongoing bankruptcy case, it appears, requires no small amount of faith. "If you're an investor, you've got to start stepping through a lot of

railroad tracks here," says Peter A. Chapman, president of

Bankruptcy Creditors' Service

, a newsletter publisher tracking large restructurings.

For starters, one has to assume that the legislation passes at all. For years, Congress has been grappling with the asbestos liability issue -- which has sent dozens of companies into bankruptcy -- by attempting to establish some sort of asbestos trust fund. But no legislation has passed.

While the odds for passage may have improved following the Republican victories in the Senate and White House -- and the defeat of John Edwards, the Democratic vice presidential candidate and a former trial lawyer -- many unsettled issues remain. As noted in a recent article in Minnesota's

Star Tribune,

one of the major holdups to past and future legislation is disagreement about how to make the transition from litigation that's already in progress.

Investors also don't know whether any legislation will arrive in time to apply to the bankruptcy case. Last month, the judge officiating over the bankruptcy of Armstrong World Industries -- another asbestos-related case -- refused to delay proceedings to give Congress a chance to act on asbestos-reform legislation, according to the Lancaster

Intelligencer Journal.

Steve Gidumal, portfolio manager at Virtus Capital Management, says he's in favor of asbestos reform legislation because the current state of affairs enables members of the asbestos-litigation bar to co-opt company management. "We think

legislation eventually will happen because it makes too much sense," Gidumal says, "and because every other country in the world has such legislation."

But he shies away from forecasting whether anything will happen in enough time to affect the Owens Corning bankruptcy. "I don't know how anyone is capable of handicapping that right now." Gidumal's firm, which has invested in asbestos-related securities, has no current investment in the company.

Meanwhile, the asbestos liability question is clouded by a Jan. 13 hearing intended to set the size of Owens Corning's present and future asbestos liability.

The Wall Street Journal

has been editorializing that the number should be lower than $16 billion, and Rahl says that a term sheet agreed to by Owens Corning, bondholders and asbestos claimants implies a liability number in the range of $7 billion to $9 billion.

But while a lower litigated number might improve a payoff for creditors, it doesn't appear that any nonlegislated solution would bail out shareholders.