The face of this historic stock market crash is perhaps the cruise line industry. So it’s not a surprise to see Carnival Corporation (NYSE:CCL) stock fall almost 90% from its highs. In January CCL stock was $52 and at the lows of last week it was under $8 per share.
But Carnival’s management didn’t do anything to cause this drop. Instead, the stock is falling because of how fast the coronavirus from China hit the industry. Similar damage occurred in airline stocks. For example, Delta Air Lines (NYSE:DAL) and American Airlines (NASDAQ:AAL) are also down at least 70% from their highs.
Clearly this isn’t normal price action.
What we have seen happen to CCL stock this year is devastation of epic proportions. Such devastation typically doesn’t occur without a company-specific reason. But this time there is no one to blame.
Nobody saw the virus coming. And moreover, very few expected the whole world to go into lockdown.
In hindsight we can say that it would have been better to take the first list. From here, betting on further downside means you expect Carnival to go out of business. Just a few weeks ago it was a profitable company with a rosy outlook.
CCL Stock Is in Tremendous Pain
Remember, the market is still highly volatile. CCL stock could still reach new lows. Yesterday, the Dow Jones Industrial Average rose 11% in mere hours. And for what reason? With all this chaos in mind, don’t try to pick the “perfect” bottom.
Value can’t save Carnival. Neither can its huge dividend yield. We simply don’t know what the company’s income statement will look like for 2020. The balance sheet is more important here because Carnival’s survival is at stake.
Fortunately governments have committed to helping businesses survive this debacle, so we can expect some federal relief coming for Carnival. The thesis here is that time will heal the company’s wounds. It’s in a coma, but it’s not dead yet.
The Carnival Stock Chart Finally Shows Support
It didn’t take long for this correction to send CCL stock back to levels from 1992. But at this point, the damage — and even the potential for additional wounds — has been priced in to the stock.
If the medical community finds a vaccine in 2020, then the world can return to normal. Part of that “normal” is people vacationing and cruising. It is important to note that senior citizens may be slower to return to the cruise industry because of coronavirus fears.
That’s why I don’t expect a V-shaped recovery for CCL stock, unless there is a miracle headline.
So what’s the strategy? Buy low, and sell high. Investors need to think like Warren Buffett and be greedy when others are fearful. The best deals are usually available when there is blood in the streets.
Humanity Will Prevail Over Covid-19
The message here is that this too shall pass. But there is definitely risk here, or else there would be no reward. An upside bet on CCL stock must be tactical, and investors must put on their trader hats while entering long positions.
There are also could be lingering risks that impact Carnival. Some behaviors could change forever after this virus scare. For example, there will be some people who decide to never cruise again.
Remember, just because CCL stock is cheap doesn’t mean it can’t get cheaper. When volatility is this high, investors need to take partial positions. It is reckless to take on full-size risk all at once.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
