This Just In: More Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)

Given this, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.

Today, we start off with a "paired trade," as one analyst sees a future for Bank of America (NYSE: BAC  ) , while another sees pain ahead for shareholders of New York Community Bancorp (NYSE: NYB  ) . Then we'll switch gears and find out why Boeing (NYSE: BA  ) might be a "buy."

Banking on America
First up, analysts at Evercore Partners upped Bank of America to an "overweight" rating this morning, predicting this sub-$7 stock could rise as much as 50%, to hit $10 a stub within a year. It's kind of a strange suggestion coming on a day when most newspaper headlines are full of reports suggesting B of A intentionally hid the size of Merrill Lynch's losses from its shareholders prior to the 2008 shareholder vote that approved its purchase of Merrill.

That all sounds pretty bad, but according to Evercore, this is really a question of banking investors being forced to pick the lesser of two evils. Sure, B of A has risks. But Evercore thinks investors are so scared of Europe right now that anyone who wants to invest in a bank is going to choose to invest in American banks by default. And what's a more American bank than the "Bank of America"?

I don't personally agree with the logic, but for what it's worth, now you know Evercore's reasoning.

Don't bank on New York
At the same time as Evercore was talking up B of A, down in D.C. the analysts at FBR Capital were talking down New York Community Bancorp. This morning, bright and early, FBR cut its rating on NYCB to "market perform" -- and it's about durned time.

Listen, I know this bank has a lot of fans out there in investor-land. With a P/E ratio of less than 11, and a generous 8.5% dividend yield, it's bound to be popular. Even so, I've been warning for months that NYCB is not all it seems. Eleven times earnings may sound cheap, but most of America's big bankers cost considerably less. Meanwhile, the stock's pegged for a subpar 4% annualized earnings growth over the next five years. And as for the dividend, NYCB is already paying out more than 90% of its earnings, so it's hard to see how that will grow much more, either.

Long story short, NYCB may not be the worst banking stock in the country -- according to FBR, that "honor" falls to Boston Private Financial Holdings (Nasdaq: BPFH  ) and Huntington Bancshares (Nasdaq: HBAN  ) , both of which received even sharper downgrades from the analyst, to "underperform" -- but NYCB is no prize, either.

Could Boeing fly high?
In happier news, two analysts argued today that there are brighter prospects ahead for Boeing. First up, ace analyst Stifel Nicolaus points out that about half of the world's 21,000 operational aircraft are due for retirement over the next five to 10 years. Add to this a global need for 7,500 additional aircraft to support increasing air traffic, and demand for new planes should reach close to 20,000, if not more. Stifel believes Boeing can capture the majority of these new plane orders, eclipsing Airbus and bagging perhaps 11,000 new sales in addition to what it's already got in backlog. (Which is a lot).

That's the long-term story. Shorter term, analysts at Sterne Agee see an immediate catalyst in July's Farnborough Air Show, where they're predicting mongo sales for Boeing, to be immediately followed by good news on Q2 earnings.

Long story short, with the stock down 10% over the past year, the odds are once again swinging back in Boeing's favor. This is why I closed my CAPS bet against Boeing last month (yes, at a profit -- thanks for asking). It's why I'd advise you to do the same.

Boeing may not be our absolute favorite stock here at the Fool, but with the stock now selling for a more reasonable price (less than 12 times earnings), growing nicely (11% annualized), and paying a strong dividend (2.6%), I agree with the analysts on this one. Boeing was overpriced. It isn't anymore.

To find out which company is the Fool's favorite, check out the free report "The Motley Fool's Top Stock for 2012."

Whose advice should you take -- mine, or that of "professional" analysts like Evercore, FBR, Stifel, and Sterne Agee? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.

Fool contributor Rich Smith owns no shares of any company mentioned above. He has public recommendations available on more than 60 other companies. Check them out on Motley Fool CAPS, where he goes by the handle "TMFDitty" -- and is currently ranked No. 334 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy.

The Motley Fool owns shares of Huntington Bancshares and Bank of America. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2012, at 4:35 PM, 1caflash wrote:

    Rich, give us a break! FBRC is having all kinds of problems, while NYB has always been shareholder-friendly. I'll stick with NYB, especially after a downgrade from an analyst who works for a company that is practically a no-count; besides, it is always easier to downgrade a firm during a down market; even you or I can do it.

  • Report this Comment On June 04, 2012, at 6:03 PM, Teacherman1 wrote:

    I think the FBR analyist is wrong about HBAN. I have no opinion on BPFH or NYCB.

    HBAN has come a long way since the "big crash", which in their case was caused mainly by their ill-advised Franklin "fiasco".

    Under the guidance of their new CEO (brought in after the crash), they have completely reorganized the company, cleaning up bad loans and putting systems in place to make sure they never get back to that place.

    They paid off TARP, reinstated a dividend (and raised it), and are following a careful, conservative program.

    They are profitable, and will remain so.

    It took time to "clean up the mess" and it will take time for them to come back to what they were, but I have every confidence that they will continue to grow their profits, increase their dividends, and show share price appreciation.

    Take advantage of this "schitzo market" to take a position, then nibble your way to a significant piece of a future multibagger.

    JMO and worth exactly what I am charging for it.

  • Report this Comment On June 06, 2012, at 7:23 PM, easyavenue wrote:

    First, I think New York Community Bancorp, Inc. is NYB, not NYBC?

    According to P. Van Doom of TheStreet.com:

    Although the payout ratio is high, they have maintained the dividend for 33 straight quarters.

    New York Community has a deal in place to receive $24 million to assume $2.3 billion in deposits from Aurora Bank of Wilmington, Del.

    Other feathers in New York Community Bancorp's cap include a long-term record for very strong loan quality, along with good, consistent earnings performance.

    I think before anyone can form an opinion on a stock they should look at all the facts, good and bad. I know..., bad sells. Too bad!

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