There aren’t many stocks who are as vulnerable to pandemic fears as a cruise line. And in recent weeks, Royal Caribbean Cruises (NYSE:RCL) is taking it on the chin as people find the idea of sharing close quarters with a few thousand strangers a little bit worrisome.
Indeed, one of the worst things that could possibly happen to the cruise line industry is the ongoing saga of the doomed Diamond Princess, which was placed under quarantine after an outbreak of the coronavirus from China in January.
The 3,711 people on board were forced to stay in their cabins as the ship docked off the coast of Japan. Predictably, the ship became a Petri dish for illness. More than 700 people on the ship contracted the virus. And so far the ship’s manifest reports that there are six fatalities.
The Seas Are Choppy
The Diamond Princess is owned by RCL competitor Carnival (NYSE:CCL), but Royal Caribbean is feeling plenty of pain as well. RCL stock is down a staggering 41% so far this year. It dropped from $135 per share in mid-January to under $80 now.
Deutsche Bank analyst Chis Woronka downgraded RCL from “buy” to “hold” while cutting his price target from $143 to $80. Buckingham analyst Daniel McKenzie downgraded from “buy” to “neutral” with a $122 price target.
Royal Caribbean has cancelled 30 cruises so far in southeast Asia, imposed travel restrictions and sent extra medical personnel to its ships. It has workers cleaning high-traffic areas several times a day and making multiple safety announcements to passengers. Those are all necessary steps. But they sure aren’t the most comforting things to hear when you’re just wanting to relax and sip a drink with little umbrellas in it.
RCL lowered 2020 guidance by 65 cents per share, and then revised the cut in February to 90 cents. It also warned that if RCL must cancel its remaining cruises in Asia through April, it could cut guidance again by another 30 cents per share.
When to Buy RCL Stock on the Rebound
There’s nothing I like better than finding good companies trading at a discount. And while RCL is way too volatile to invest in today, this stock represents an amazing buying opportunity later this year.
Look at it this way. There have been plenty of horror stories in recent years about illnesses on cruise lines, with flu-like symptoms occasionally wreaking havoc on passengers’ intestinal tracts. But despite those isolated incidents, cruise lines are becoming ever more popular.
In fact, the number of passengers taking global cruises increased from 17.8 million in 2009 to a projected 30 million in 2019, according to the Cruise Lines International Association. And Generation X passengers are becoming reliable cruise line customers.
The coronavirus will wound the cruise line industry, but it won’t end it. And if you time your purchase right, it can be a big winner for you later this year.
RCL is now trading below its 200-day moving average and typically finds support around $70 per share before bouncing higher. But be warned. There’s a decent chance the stock will drop below $70, particularly if it cancels more cruises this spring.
However, RCL has a strong track record of performance for the long term. Look for Royal Caribbean stock to find its way higher after the coronavirus fears subside.
If you’re going to take a new position in this substantially discounted stock, average in your investment over a period of time and count your profits when RCL stock is back over $100 per share by the end of the year.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.