Sometimes a sinking ship is just a sinking ship. When it comes to shares of Carnival (NYSE:CCL), investors should be prepared to safely disembark. Let’s take a look at conditions off and on the price chart to see why booking a trip in CCL stock might not be a good idea.
Pfizer (NYSE:PFE). Moderna (NASDAQ:MRNA). The past two Monday’s have ushered in great news for individuals, families, many businesses and the economy at large. I’m talking of course about both drug manufacturers’ compelling results with their novel coronavirus vaccines.
Wall Street reacted by sending the S&P 500 and Dow Jones Industrial Average to all-time-highs for the first time since the pandemic began. But in securing those gains, investors also did a bit of house cleaning and rotating of portfolio exposure. Many of Covid-19’s biggest tech stock winners have sunk lower since last Monday’s initial report from Pfizer. Amazon (NASDAQ:AMZN). Zoom Video (NASDAQ:ZM). Teladoc (NYSE:TDOC).
At the same time, many “stay away” stocks have jumped higher. Royal Caribbean (NYSE:RCL). Las Vegas Sands (NYSE:LVS). Hilton (NYSE:HLT). And not exactly a shocker, CCL stock wasn’t immune to the response. Shares soared higher on Pfizer’s initial efficacy results and finished up nearly 40%. And this week on the back of Moderna’s slightly more impressive report, CCL added almost 10% on the session. But that may be as good as it gets.
As I just finished writing at InvestorPlace, I’m no fan of the lido deck. That’s beside the point though. The thing is there’s simply stronger-looking “stay away” stocks offering investors more attractive contrarian style opportunities. In my estimation, that includes cruise liner and competitor Royal Caribbean (NYSE:RCL).
While investors can now breathe a sigh of relief and anticipate a return towards normalcy in 2021, Carnival still isn’t set to begin cruise operations out of select ports until February at the earliest. And Tampa Bay is scheduled to open until late March. That compares unfavorably to RCL, which is looking to resume some its cruises beginning in January. And for a company burning through tons of cash daily as its ships remain in drydock, it’s a concern.
The other fact is Carnival is simply not as well-positioned to weather always possible and unforeseen headwinds. What if there’s further delays? If that were to happen, after its recent $1 billion capital raise, Royal Caribbean is the stronger choice.
To be fair, the shares do have some bulls’ attention because of solid-looking future bookings. But the cruise liner isn’t unique on that front either. Again, RCL is showing similar strength. All told, if you’re going to make an obviously contrarian trade and long exposure to a cruise liner, Carnival isn’t the most seaworthy choice.
A Look At the CCL Stock Monthly Chart
Source: Charts by TradingView
Another problem right now with CCL stock is that shares are comparatively much weaker than many other “stay away” stocks, including RCL.
Nearly eight months after the broader market bottomed and again, now hitting fresh all-time-highs, CCL stock remains just off (relatively speaking) its 2008 – 2009 financial crisis low. And technically, with the relative and absolute price weakness consolidating in a looser pattern, which more than anything else resembles a bearish flag, it’s rightfully a concern.
Ultimately, even with a contrarian investment, there should be some boxes to check off when it comes to a safer purchase. Today, off and on the price chart, Carnival is coming up short. But if you’re going to climb aboard CCL shares no matter the obvious challenges and warning signs, investors would be well-served to consider the options market to effectively hedge Carnival’s larger downside stock risk.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.