For Carnival Stock, It’s Time to Abandon Ship

If your life were a carnival right now, as in Carnival Corp. (NYSE:CCL), you’d be plunging on a log flume into way-troubled waters. Because on the roiling seas of the cruise line sector — which right now inspires all the warm and fuzzies of a Petri dish facial —you’d be better off with a splintered lifeboat and some shark repellant. Carnival stock? That requires a different kind of repellant but boy, oh boy will you need it.

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Applying the logic of first-in-last-out, we all know that cruise ships propagated the initial spread of the novel coronavirus. What none of us can predict with any certainty is when passengers will once again feel safe on them. Among all modes of travel, even airlines, they may come last.

Given a vaccine in 2021, restored confidence could come soon. Or never.

As I’ve previously written, Carnival and its ilk depend quite a bit on retirees to fill the cabins. Putting one’s health in peril, or enduring the anxiety surrounding such a fate, is not exactly the kind of high seas adventure you want to sell.

My strident views of the woebegone sector and how it has battered this Miami-based company have been vocal. I’m not just concerned about your investment health but your bodily health as well. Concentrating for the time on the former, is it time to get on board?

Here we’ll scout out Carnival stock as seen from Captain Lou’s trusty spyglass.

Carnival Stock and the Pre-Pandemic Blahs

I want to be fairer than fair: You can’t fault a company for global conditions so far outside its control that they rank as historic. Covid-19 is the pirate that has taken Carnival stock hostage, plundering innocent portfolios in the process. Looking forward to a day when the virus goes on hiatus, we need first look back at how this investment fared in the pre-pandemic days.

The truth is, not so well. Those who bought Carnival 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 that’s before Covid-19 became a daily fact of life. Today, CCL stock is at its lowest level since mid-November 1996.

In fact, things have only gotten worse since I wrote about CCL last month. Post-Labor Day it traded at $18.53 per share; today, it fetches $15.36. That adds up to a 19% price shavings and puts Carnival stock down 69% year over year. As they say in nautical parlance: Oh, that sinking feeling.

Wherefore a Wave to Ride?

When I draw up scenarios by which Carnival stock could bounce back, they reek more of the fantastical than the probable. First, Carnival must regain the trust of those now frightened of this form of leisure travel, in large part by rendering their ships virtually sterile. Next, those who’ve lost their jobs and drained their savings need to get back on their feet before they’re in any shape to buy tickets.

And finally, CCL must enact drastic expense cuts to prop up Carnival stock, but somehow continue operating in anticipation of a drop in Covid-19 cases. Viewed cynically, it may not matter too much. A large portion of the population still refuses to wear masks and defies social distancing edicts.

That could be the crowd Carnival needs to attract, though I wouldn’t want to stand in the shoes of a CEO answering tough questions about an oceangoing “superspreader” event.

So as an investment, Carnival stock has all the gusto of a bathtub boat. The C-suite crew must decide what if anything it can do. Sadly, there’s no precedent for tracking this kind of situation even when one turns back the clock to the company’s founding in 1972.

Carnival Is Stuck In a Perfect Storm

Think of it this way: As long as Covid-19 rages on, looking for the bright side on Carnival’s financial side is fruitless. Only if you’re a day trader hoping to leap on some hiccup fluctuation would I entertain an investment here, and I’m no fan of that kind of sport. I don’t even see much short sale potential here, as Carnival stock is floating in fairly shallow, tepid water these days. I’m not sure how much lower it can go. And it might just sit there.

Cracking this enigma and riding the pandemic storm out can’t possibly constitute a worthwhile endeavor. As for those stuck with Carnival stock purchased even a year ago, I don’t know what to say. You could cut your losses right now, but they’d be fairly steep. And waiting out some sort of recovery is a long play you might as well file under “set it, forget and likely regret it.”

And while I boastfully regard myself as a wordsmith worth his weight in battleship ballast, I can’t help but wonder whether my assessment here has wasted a valuable slice of your time. Because if you came in already nursing strong doubts about Carnival stock, I’m not convinced I’ve told you something you don’t already know – except, perhaps, that this investment shall soon be firmly run aground. At least that’s a new way of putting it, I think.

Or if you insist on a seafaring sort of exit, shout it out loud: “ABANDON SHIP!”

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

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