Why does this darn stock keep going down? Part II

On Friday I started this post concerning a pair of stocks that have me baffled by their eroding stock prices. Part 1 was some information on what I see going on with City Bank (CTBK) and today I will complete the duo with some information on Aircastle Ltd. (AYR) the aircraft leasing company.

I first noticed Aircastle when they cut their dividend from 70¢ to 25¢ per quarter earlier this year. I started watching the company to see if their financial condition was deteriorating or improving. When the 1st quarter earnings report came out in early May the results were very positive. Revenues and earnings are rising and the company is doing a good job keeping their fleet leased out. Aircastle has less than a 10% exposure to U.S. based airlines and international air traffic is considered a growth area. I made the conclusion that there is a high probability the company will start increasing the dividend and added the stock to this site’s Income Portfolio and purchase a small holding for my own account.

After the earnings release the stock price hovered in the $16 range, then about two weeks ago started dropping. The descent has been steady, and now the stock is trading at less that $12.50. Ouch! I have not been able to find any news to justify the price decrease, and my only guess is that investors believe high fuel prices for airlines (Aircastle’s customers) will end up having a negative effect on Aircastle. At this point the stock price is trading for only 6.7 times estimated 2008 earnings and the yield is at 7.8% with the current dividend.

My purpose in writing these posts is to express a realization that as primarily a fundamental investor, it can be a disadvantage to ignore technical trends. When I see a stock I like decrease in price, my tendency is to want to buy more, but it appears that once a stock price starts a trend it is very difficult to determine when the trend will reverse, without (apparently) regards to the prospects for the company. Or I just do not have access to the level of information that is telling investors to bail out on these stocks. From my experience with these two stocks, I will be looking for some signs of a trend reversal before jumping in to start or add to a position. I think I need to study up on some basic technical analysis techniques.

Of course, I did add to my position in AYR on Friday when it looked like the stock was leveling off and today it is down another 3%. Good thing the position is still very small. If they follow last year’s schedule, Aircastle should announce the 2nd quarter dividend around the middle of this month. Keep watching!

Note: I have long positions in CTBK and AYR.

Posted in Categories: Contributor, External Research, Stocks, USA.

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