For Norwegian Cruise Line Stock, Covid-19 Is Judge and Jury

When journalist Bob Woodward revealed that President Donald Trump deliberately downplayed the novel coronavirus pandemic, politically uninclined observers likely thought that this revelation would doom the incumbent’s election chances. However, the opposite may have happened as Trump’s base seems more emboldened to support their man. But I wonder if the same sentiment would apply for Norwegian Cruise Line (NYSE:NCLH)? After all, a similar controversy clouds Norwegian Cruise Line stock.

a large Norwegian Cruise Lines ship in the ocean
Source: Roberto Sorin /

Earlier this year when regular folks received more rumors about the coronavirus than substantive information, Norwegian apparently saw the writing on the wall. According to a very damaging report first published by the Miami New Times, company insiders deliberately crafted false messages to reassure worried passengers.

According to a whistleblower email shared with the Washington Post, Norwegian sales representatives were urged to aggressively close deals for prospective passengers sitting on the fence. Additionally, one company manager addressed dozens of employees, stating, “The only thing you need to worry about for your cruise is do you have enough sunscreen?”

To say this is damaging for the reputation of Norwegian Cruise Line stock is a gross understatement. Nevertheless, with so many people around the world having been forced to shelter in place, many are ready to reclaim their lives. More importantly, according to data from the Centers for Disease Control and Prevention, the number of new daily Covid-19 cases in the U.S. have declined sharply since this summer’s peak.

As well, air travel passenger volume have noticeably increased from this year’s lows. Thus, it seems like it’s a great time to speculate on a recovery for Norwegian Cruise Line stock. But you may want to hold off.

The Coronavirus Will Have the Last Word

Although I recognize the temptation to dive into NCLH, common sense should rule your investment decisions. I get it. People are tired of being cooped up at home. Also, the economy, based on “real” metrics that matter to people such as the unemployment rate, is moving favorably.

Plus, you have that investment adage: be greedy when others are fearful and be fearful when others are greedy. So, the present circumstances almost compel you to consider Norwegian Cruise Line stock.

But the key is, which direction? If you believe in reports about a possible second wave, then I’m not sure if going on a cruise is a bright idea. And that means I’m not sure if investing in a cruise ship operator is all that smart.

We’ve all heard multiple politicians state that they’re following the science. With Norwegian Cruise Line stock, I’m following the math. Based on an analysis of NCLH against U.S. Covid-19 cases, it’s clear we have an inverse correlation of significant magnitude. For most of you, that’s not surprising.

NCLH stock vs. Covid-19 cases
Click to Enlarge
Source: Chart by Josh Enomoto

Still, it’s worth going over the data. Between March 2 and April 2, NCLH and Covid-19 cases had an inverse correlation coefficient of 46%. Between April 3 and June 8, the coefficient was nearly -42%. Later, from June 9 to July 23, the correlation was almost -76%.

I could go on. The point is, as coronavirus cases increase, the sentiment for Norwegian Cruise Line stock has consistently faded. And it’s the same situation with Norwegian’s main rival, Royal Caribbean Cruises (NYSE:RCL) and Carnival (NYSE:CCL). Put another way, none of the competitors can distinguish their safety efforts from the others.

And why would they be able to? Ultimately, with cruises, you’re talking about giant floating Petri dishes.

Travel Demand Isn’t as Great as You Might Think

Not only that, I don’t find much encouragement from other travel industries. In my opinion, air travel demand is quite disappointing. For a while there, you saw passenger volume reach 40% that of the year-ago level. Recently, it has settled to around one-third of year-over-year comparisons.

Could this situation improve over the next few weeks and months? Absolutely! But the main takeaway is that even with travels of necessity, the overall volume of people is just not sustainable for the broader travel industry.

Also, while the economy is improving, the recovery is imbalanced, with many communities not receiving as robust of an improvement. So, I’m skeptical about the pent-up demand theory as it relates to cruise ship operators. With the health crisis still a threat and an economy still vulnerable to volatility, going on a cruise seems like a dumb thing to do.

But again, the math will determine the trajectory of Norwegian Cruise Line stock. If you see coronavirus cases fading, this may be a tremendously discounted opportunity. But if not, you ought to stay away.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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