The bears on Palm (PALM) continue to cave after a furious rally in the stock following the company’s announcement of its “new newness,” the Palm Web OS and the Palm Pre handset.

Yesterday, the stock was upgraded by former Palm bears at Citigroup and Deutsche Bank. This morning, UBS analyst Maynard Um made a similar move, raising his rating to Neutral from Sell, and upping his price target to $6.50 from $1.35. “The Palm Pre generated significant buzz at CES, surprised us to the upside and breathed new life into Palm’s stagnant portfolio,” he wrote in a research note. “Though the company still has challenges ahead, it’s clear the winds now appear to have shifted in its favor.”

Um raised his EPS estimate for the May 2010 fiscal year to positive 48 cents from a loss of 52 cents. His revenue forecast for the year jumps to $1.68 billion, from $1 billion.

Um also set a short-term Buy rating on the stock ahead of the 3GSM World Congress in Barcelona in February; he thinks the company will announced a 3G version of the phone, as well as potentially a carrier.

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