Great Trades

In January, we highlighted a sell opportunity on Rambus (RMBS) shares near $35 and later removed coverage as it dropped, saying we would revisit the RMBS sell call if it rallies again.

Today, after selling off to the 26's in February, RMBS is approaching the $38 target cited in the WR Hambrecht upgrade in January that assumed RMBS would win all its court battles and receive payment this year. This rally has been spurred on by several press releases related to RMBS's ongoing business as well as speculation on the results of the ongoing Hynix trial. The ongoing business news has been insignificant compared to the huge premium priced into the stock, which assumes RMBS will win all their cases.

We believe that Rambus again represents a good sell opportunity. If Rambus wins the Hynix case as expected, we expect a sell the news reaction, as shares are valued well beyond the underlying fundamentals. If they lose the case, we expect a collapse in the stock price. The Hynix case should be decided within the next few weeks.