You might have heard that beaten-down stocks are hot items nowadays. Royal Caribbean Cruises (NYSE:RCL) and the the cruise-line industry overall have struggled during the novel-coronavirus crisis. So, it might be tempting to take a position in RCL stock now.
It’s a speculative bet, no doubt. The worst-case scenario is a “paper loss” (assuming you don’t sell your shares and book a real loss) that could last for months or even years. On the other hand, there’s the possibility of a swift and unexpected turnaround.
Expecting the unexpected does pay off sometimes. But is it a rational way to invest? The recommended route is to examine the pros and cons of an investment like RCL stock and see what the data tells us. Who knows? Maybe it’s not a sinking ship, after all.
A Closer Look at RCL Stock
You probably already know about the novel coronavirus crash and its impact on the RCL stock price. At this point, it might be more interesting to observe the buyers’ attempt at a recovery. They’ve had some success but seem to still be struggling.
In the middle of May, the RCL share price was stagnating in the mid-$30’s. Then it had a sharp multi-day pop, rising to $75 by June 8. This move undoubtedly stoked the hopes of eager retail traders, whom some folks call the “Robinhood crowd.”
However, that turned out to be too much, too fast. By May 20, the stock was back at the $55 level, signaling that optimism should be tempered and the share-price recovery will be more gradual than dramatic.
Reasons for Hope?
Traders on June 16 bid up the prices of not only RCL stock, but of cruise-line stocks generally. However, if you looked for a catalyst specific to cruises lines, you might have been disappointed.
Instead, you would have needed to look at a couple of macro-level factors. First, clinical researchers in England concluded that a steroid called dexamethasone improves the survival rate of Covid-19 patients who are on ventilators or are taking supplemental oxygen.
That’s great, but let’s not jump the gun here. You should also know that dexamethasone wasn’t found to otherwise improve the clinical outcomes for the patients exhibiting less severe Covid-19 symptoms.
Nonetheless, market participants evidently took a half-glass-full view of the news and ran up the RCL share price. Perhaps they also appreciated the possibilities inherent in the White House’s proposed infrastructure-spending plan. This plan would inject $1 trillion into the economy.
Time to Stay Cautious
This might all sound promising, and you may want to use the aforementioned factors as reasons to buy RCL shares. However, be advised that dexamethasone is still in the clinical-trials stage. And it’s by no means a cure-all for the Covid crisis.
Before people feel comfortable getting on cruise ships again, they’ll want to see a widely available coronavirus vaccine. They’ll want to see conclusive evidence that it’s safe and effective. This could be a long way off in the future.
As for the $1 trillion infrastructure-spending proposal, bear in mind that it hasn’t passed through Congress. And if it does manage to become a law, its focus will be roads and bridges and perhaps some 5G-network spending thrown in for good measure. The positive impact on cruise lines will be mostly indirect and probably delayed.
Complicating matters even more is the announcement that the Cruise Lines International Association is extending its suspension of operations of cruises from U.S.-based ports. This will be in effect until Sept. 15 of this year. Rival Carnival (NYSE:CCL) said yesterday it would further postpone the restart of operations for North American voyages until Sept. 30.
That’s a major disappointment as the cruise-line industry was anticipating the expiration on July 24 of the U.S. Centers for Disease Control and Prevention’s no-sail order.
The Bottom Line
There might be macro-level reasons to be enthusiastic about the cruise-line industry today. Yet, cautious investors can find reasons to temper their optimism or even abandon it altogether.
Therefore, it’s best to wait for further developments and hold off on any plans to buy shares of RCL stock.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities. David has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.
