This Just In: 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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
What do you do when one of the best stock pickers in the business downgrades one of the biggest names in aerospace? I'll tell you what I do. I listen carefully -- then I write up a column real quick to let you know what's up.

Barclays Capital downgraded shares of Boeing (NYSE:BA) to "equal weight" this morning. Why? Barclays worries that "technical challenges and additional delays" on the 787 project are going to push deliveries out even farther than the two years they've already been delayed. Worse, no one knows how much longer the plane's arrival could be delayed, because "Boeing is as yet unable to assess either schedule or financial impact." Between higher pre-production costs, "technical fixes, penalties to airlines and supplier claims," Barclays fears the airplane maker will incur "significant" cost overruns on the project, and may even lose money on it in the short term.

Investors are selling off Boeing's shares on the news -- as well they should. You see, we've been tracking this banker's performance ever since it began reporting ratings through Briefing.com last October. So far, Barclays has proven itself a standout analyst, getting most of its recommendations right, and outperforming nearly 95% of the investors we track.

But that's not the whole story.

Let's go to the tape
You see, while Barclays has picked some incredible winners -- Yingli Green Energy (NYSE:YGE) for example, which has more than doubled since Barclays picked it, and Genworth Financial (NYSE:GNW), which has more than tripled -- it's not exactly "Top Gun" in the Airline and Aerospace and Defense industries.

A few examples drawn from these segments illustrate the problem:

Although Barclays has done reasonably well overall in the Aerospace and Defense sector, it has benefited mostly from a few great picks that overshadow many of its smaller bad picks. In the Airlines sector, Barclays made four bad calls for every one it got right.

Which is one reason why I am not encouraged by the fact that today's downgrade goes no farther than calling Boeing a "hold." You see, while Barclays expresses pessimism in the short term, it's not willing to abandon Boeing entirely just yet. Looking past the current problems with the Dreamliner, Barclays argues that once Boeing has ironed out its 787 issues and ramped up production to the planned rate of 120 per year by 2013, the Dreamliner could well become "the most profitable aircraft Boeing has ever had." Which echoes a point that my Foolish colleague Rich Duprey made last month: Boeing's difficulties are just that -- difficult. As in, not insurmountable. They contain "nothing that is fatal to the plane ultimately getting aloft."

Is it time to sell Boeing?
But here's the thing -- according to Barclays, Boeing won't ramp up to that production level for at least four more years. And with the 787 yet to experience its maiden flight, investors must weigh the risk that profit from the 787 could be even farther off than it seems today.

As I described last week, this nightmare scenario seems more likely in light of revelations that Boeing continues to provide minimal amounts of detail regarding news on its latest structural flaw. A recent column in the Seattle Times cites knowledgeable sources contradicting Boeing, which has said that the structural issue will not require a redesign of the wing. However, the Seattle Times source has said that a partial redesign will be necessary and that problems with the 787's wing connection will take a minimum of four months to fix, and possibly as long as six months ... and all of this is before the plane can even take its first test flight, much less get certified to fly and begin manufacture.

Foolish takeaway
Four years is a long time to wait for Boeing's promised "record profit" -- and it's only getting longer. Barclays may be willing to hold the shares and wait it out. But I suspect the rest of us can find better uses for our money in the interim. So maybe it is time to sell Boeing?