I’ve been bearish on Carnival (NYSE:CCL) stock, mostly doubting whether the company had enough money to hold out until the end of the novel coronavirus pandemic. But with the development of vaccines moving more quickly than I expected and the U.S. and Europe looking poised to get access to a vaccine before other regions of the world, I’m more upbeat on CCL stock than I’ve ever been during the pandemic.
To be sure, I continue to remain much more bullish on airline stocks than on the cruise names, yet Carnival does offer some hope.
My logic goes like this: The lion’s share of Carnival’s cruises depart from the U.S. and a few leave from Europe. Further, I think there’s a good possibility that the U.S. will develop at least partial herd immunity to the virus within a few months.
AstraZeneca Vaccine is Progressing Rapidly
In my June 23 column on Carnival, I noted that the World Health Organization “predicted that there would be 2 billion doses of a coronavirus vaccine by the end of 2021.” And since there are nearly 8 billion people in the world, I predicted that many people who are not that vulnerable to the virus would not be given a vaccine until the end of next year. Finally, based on my calculations, it appeared that Carnival could run out of cash in July 2020, making me believe that it could very well go bankrupt.
But the development of vaccines appears to be moving more quickly than I had expected. Specifically, AstraZeneca (NYSE:AZN), which is working on a vaccine with Oxford University, ” plans to start distributing the vaccine to the U.S. and U.K. in September or October, with the balance of deliveries likely to be made by early 2021.” It intends to deliver a combined 400 million doses of the vaccine to the U.S. and U.K.
Since children are largely immune to the effects of the coronavirus, that should be plenty to cover both of those nations. The drug maker plans to provide up to 400 million doses to other European nations, with deliveries to them starting by the end of the year.
AstraZeneca sounds fairly confident about its vaccine. Not only did it sign the agreements with the U.S., many European nations, and the U.K., but it recently stated that its vaccine works in the laboratory. Specifically, in a press release, it stated that, “researchers have shown that antibodies produced against sections of the spike protein after natural infection are able to neutralize (kill) the virus when tested in the laboratory.”
The product has also proven safe in humans and worked well in chimpanzees. Moreover, after launching an initial trial of the vaccine on humans, the company is moving onto another trial. Along with the fact that AstraZeneca has already signed deals with multiple countries, the initiation of the new trial suggests that the vaccine worked well in humans.
And on July 1, Pfizer (NYSE:PFE) sparked a stock market rally by announcing that its vaccine candidate had prompted favorable immune responses in a number of trial participants. Although the vaccine candidate caused “fever and other side effects,” Pfizer said it was “viable.”
As an American company, Pfizer is likely to provide the U.S. with doses of its vaccine before any other country. Gilead Sciences (NASDAQ:GILD) recently showed that American drug companies tend to prefer providing drugs to the U.S. early on; the company made a deal to supply 500,000 doses of its anti-coronavirus drug, remdesivir, to the U.S. According to the Department of Health and Human Services, the 500,000 doses “represents 100% of Gilead’s projected production for July, 90% of production in August , and 90% of production in September.”
Herd Immunity is a Possibility
Recent antibody testing in North Carolina indicated that about 17% of the state’s population has antibodiess against the coronavirus, according to former New York Times reporter Alex Berenson, who has studied the virus intensively and recently released a booklet on it. On Twitter, Berenson, referring to the North Carolina data, wrote “next stop herd immunity.”
I also believe that, given the rapid, recent spread of the virus among young people, the U.S. could achieve some level of herd immunity by the fall. In tandem with the weakening of the virus and Gilead’s drug, herd immunity could render the virus largely powerless in a few months.
Airlines are Still the Better Bet
Air travel continues to climb. During the week that ended June 26, the number of passengers who were checked by the TSA was down 79% versus the same day in 2019. But that figure doesn’t tell the whole story. That’s because international travel has fallen way more than domestic travel, and a good portion of international flights are provided by foreign airlines such as Germany’s Lufthansa (OTC:DLAKY), Turkish Airlines, and Russia’s Aeroflot.
Indeed, United Airlines (NASDAQ:UAL) recently announced that it intends to triple its flights in August, compared to June. Moreover, the airlines “says it plans to fly 40% of its overall schedule in August compared to 2019.” And as I’ve noted in the past, the airlines also can limit their cash burn rate by cutting their expenses. Moreover, unlike Carnival and its peers, the airlines could receive further assistance from Washington.
In short, the airlines, are already firmly on the comeback trail and have a safety net in case a vaccine or herd immunity does not materialize. Conversely, Carnival has not yet resumed operations and probably will not be able to access assistance from the government.
Bottom Line on CCL Stock
Given the timeline on AstraZeneca’s vaccine and the increased possibility of the virus largely fading by the fall, CCL stock has become much less risky. But the airlines remain a much better bet for investors looking to bet on a comeback story.
As of this writing, Larry Ramer owned shares of Gilead. Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been airline stocks, oil stocks and Snap. You can reach him on StockTwits at @larryramer.
