As the end of the 2nd quarter nears, I am getting a few rays of hope from the three stocks that have caused the most head scratching over the last quarter. All three were chosen for this site’s tracking portfolios as well as my personal accounts because they appeared to be good companies that the market had beaten down too far. Well, I was wrong, they had much farther to fall. Each has shown surprising strength over the last couple of days even as the broader market (Russell 3000 Index) has fallen by almost 4% over the last two trading days. On to the individual stocks:

Aircastle, Ltd. (AYR: 14.14 0.00 0.00%) This aircraft leasing company has fallen almost 50% since April 1 on fears of airline cutbacks and bankruptcies due to high fuel prices. During the quarter the company reported very strong 1st quarter earnings and declared a 2nd quarter dividend equal to the first. The stock currently yields over 12% and is only paying out a quarter of their free cash flow. Over the past two days the stock is up 7.5% from the Thursday morning low.

City Bank (CTBK: 0.00 N/A N/A) This well run regional bank from the Puget Sound area has been crushed by 60% since the quarter started as the regional banks have become the new financial whipping boys. The stock now has a PE of 3.5 on projected 2008 earnings and a yield of 6.8%. The stock price climbed 15% from the Thursday morning low.

VeraSun Energy (VSE: 0.00 N/A N/A) The largest of the down-trodden ethanol companies has fallen 40% in the quarter as higher corn prices and very negative press concerning corn ethanol have caused investors to continue to bail out on this sector. To further show the pain, VSE stock was over $15 to start the year. I believe the market and analysts seriously misunderstand the economics of the ethanol market and VeraSun in particular and I will have an extensive post about this topic in a few days. VSE stock opened Thursday at $3.92, plunged on Friday morning to $3.77, before closing Friday at $4.50, a two day gain of 14.8%.

The last two days have given me a glimmer of hope that the market is starting to see what I see in these stocks. Time will tell. I have added to all 3 positions in the last two weeks.

Note: I have long positions in AYR, CTBK and VSE.

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