It’s quite hard—impossible, in fact—to forget that many of the initial news stories coming out of the novel coronavirus outbreak involved cruise ships. And they’re still waiting, at least in America, to set sail again: a hoped-for outcome slated for October. But that’s at the earliest and it doesn’t help that just a few days ago, the New York Post ridiculed the vessels as “the floating petri dishes of the high seas.” What does all this mean, then, for Carnival (NYSE:CCL)? And for those who hold shares in CCL stock?
No mistake, Covid-19 is by far the toughest challenge the Miami, Florida-based company has faced since it first set sail in 1972. Behold, a 78% drop in CCL shares between Feb. 18 and March 18. Heading into post-Labor Day trading, CCL stock was at $18.53, 64% off the 52-week high of $51.94. Those kind of sinking-ship losses make the Titanic look like any impregnable battleship.
It’s also, let’s be fair, immensely sad and out of the company’s direct control. Carnival’s share price swan dive isn’t something of its own making. Whatever dimmed prospects exist for recovery in the cruise ship sector depend on a successful vaccine over exciting destinations.
That puts CCL in the same position as properties in the restaurant industry, live concert sector and theater. The crippling effects on the pandemic may lead to lasting changes that severely limit capacities and restrict operations.
Pre-Pandemic, a Slow Boat to Nowhere
Still, Carnival was not an alluring investment to begin with. Those who bought the stock in early 1999 were no better or worse off by 2016. The one bright spot came in late 2016, when the stock began a two-year climb that boosted shares 63%. Alas, more than half of those gains were wiped out by January, and the stock is at its lowest level since 1997.
Yes, CCL stock is up a whopping 133% since April 2, so assuming you saw this stodgy-but-solid company as having nowhere to go but up, you did well. So with the stock still down roughly two-thirds for the year, is it still a good idea to get in? I don’t think so, for a number of reasons.
First off, CCL has proven over decades—let me repeat, decades—that it’s not a good long play, even if you count the reinvesting of its dividends, currently (and artificially) at a whopping 10.79% yield. Let’s say then that CCL stock returns to fighting trim. The numbers and history speak loudly that it’s going to perform about as impressively as a tugboat in the America’s Cup.
CCL Stock in a Sinking Sector
Second, there can be little doubt that the industry will continue to suffer for a year or longer. If and when it returns, passengers may feel more like they’re boarding a medical ship than a cruise ship. Maximum capacities will drop. Passengers, especially the older ones whom CCL and its competitors attract, will likely feel unsafe for years to come.
We’re seeing similar share price trajectories in the airline industry, where the future will likely depend on planes being redesigned from the ground up with shields in between seats and super-strength air circulation systems. Those changes could mean some ray of hope for companies such as United Airlines (NASDAQ:UAL), down close to 60% since January.
About the only question that remains applies to those savvy few who bought CCL stock at its recent nadir and are wondering whether to take their profits or sit tight. That kind of Psychic Friends foresight doesn’t exist and given Covid-19, all bets and value investing strategies alike are off.
If it were my money, I’d dump a large portion now, be happy with the locked-in gains and keep the rest in—though even that carries risk. I would not wait too long if you do, six months at max. Here’s why.
Profits Not Contagious but Covid-19 Still Is
With Carnival, you’re better off talking to an infectious diseases expert than an investment analyst. Yes, winter is high season for cruisin’. But it’s also when the novel coronavirus and garden-variety influenza will stand poised to deliver a deadly one-two punch.
Would you want to be on “a floating petri dish,” even if someone took a lot of time and trouble to clean it out? Or put your health, your life even, in the hands of that guy who just sneezed on the deck chair next to you and forgot to cover his mouth?
If you’re going to believe numbers, believe these: 6.3 million Covid-19 cases, with cases up in 22 states as of Labor Day. Getting on a cruise ship, whenever an American one sets sail, isn’t just dumb: It’s dangerous. Stay away.
And while it’s unfair in a life-isn’t-fair kind of way, stay away from CCL stock no matter what the company brass says. Unless you hope to score on a months-long play that borders on market timing, you’re best off setting your sights on far distant shores.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.