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Here’s Why You Shouldn’t Take Profits from Carnival Just Yet

Randall Weisenburger is a director of Carnival (NYSE:CCL). He’s been a director since 2009. In early April, the director acquired 1.25 million shares of the cruise operator for $8 a share. Since then, CCL stock has doubled in price.

carnival cruise (CCL) ship on the water
Source: Ruth Peterkin /

Given the stock’s rapid appreciation over the past five months, combined with a cruise industry that’s still very much in limbo, many investors would consider taking some profits off the table.

Here’s why he shouldn’t do that.

There Are More Gains for CCL Stock on the Horizon

While it’s never a bad idea to take profits, investors are often guilty of selling too early and buying too late. Although CCL is trading above $16 as I write this, it is still well below its all-time high of $72.70, which was hit in January 2018.

In early July, I took a look at his shareholdings in relation to the rest of the company’s directors and officers. Except for chief executive officer Arnold Donald, and chairman of the board, Micky Arison, Weisenburger was the third-largest shareholder with 125,352 shares.

As I said at the time, he held enough stock to meet the minimum requirements for directors. He was under no obligation to add to his holdings.

“He didn’t have to increase his holdings by 11-fold. But he did,” I wrote on July 1.

As a former chief financial officer of Omnicom Group (NYSE:OMC), the world’s second-largest advertising holding company, he would have a better insight than most about the financial implications of the novel coronavirus on Carnival’s business.

The reality is that insider buying is a much better indicator of possible future gains than insider selling is on future potential losses.

“Investors constantly wonder why someone’s selling, but the truth is, we all have bills and expenses to pay. But when you step up to the plate to the degree Weisenburger did, you’ve got to believe there’s something to the buying,” I wrote in July.

That something is $10 million in unrealized gains for an annualized return of 240%.

However, were CCL stock to claw its way to half its all-time high of $72.70, Weisenburger would be looking at a 354% return (on paper) as opposed to a 100% return, currently. And the $10 million gain would jump to $35 million, a significant amount for anyone except billionaires.

Cruising Will Return

In my most recent article about Carnival in early August, I argued that cruising would most certainly return to normal sooner rather than later. That’s because there’s a large segment of the population that loves the lifestyle, with or without Covid-19.

While the cruise lines, including Carnival, realize that business isn’t going to return to pre-Covid numbers soon, the bookings for 2021 are more robust than expected. MarketWatch recently reported that Carnival continues to see a rise in bookings for next year despite the fact it’s spending very little on marketing.

Royal Caribbean Cruises (NYSE:RCL) has witnessed an astonishing number of bookings despite the negative connotations surrounding the cruise industry.

“Given the current global situation and uncertainty, we’ve been both encouraged and humbled by the volume of bookings we’ve been receiving for 2021,” Royal Caribbean CFO Jason Liberty said in its most recent earnings call. “Since our last earnings call, bookings have averaged more than double the levels seen during the first eight weeks of the global cruise suspension.”

I recommended in my August article that aggressive investors buy some CCL stock and wait for it to fall back to single digits before buying some more. Barring some economic firestorm that rocks the markets, I no longer see this happening given the momentum in bookings into next year.

I do, however, believe that CCL could fall back to $13 over the remainder of 2020. That would make a great entry point, in my opinion.

As for Randall Weisenburger, there’s no indication he’s sold any of his holdings in CCL stock in recent weeks. If he does, I don’t think you should interpret that as the end of the line for Carnival’s share price.

From where I sit, the best is yet to come.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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