Carnival Looks Good as a Short-Term Cruise Stock Play

If you will: Imagine that the novel coronavirus pandemic is under control. Nah. Let’s pretend it’s over. Over! People are out in the streets, burning their masks, smashing goony purple piñatas that look just like that ugly, spiky, hydra-headed bug. Now it’s time to book a high-seas ticket with Carnival (NYSE:CCL) and plunk down what’s left over on some CCL stock.

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

Not so fast, Capt. Cruise Ship.

Yes, the fabulous vaccine news from the likes of Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN) has buoyed investors ready for the leisure sector stock slump to end. They see a day coming in 2021 when people will return to their vacation habits with a vengeance — and who can blame them? Who among us — including you, dear reader — can say that all these months of being cooped up have dulled your appetite to get away?

Yet of all categories connected to travel, the cruise line industry deserves a big honking asterisk the size of the Titanic’s anchor. While it’s tempting to think that the rising tide of Covid-19 optimism will float all boats, CCL stock may wind up among those struggling to keep a head of steam once things return to kinda sorta normal.

CCL Stock Moves Out of Dry Dock

Earlier this month, one key analyst expressed renewed optimism about cruise line investments including CCL stock. On Dec. 3, Bank of America’s Andrew Didora adjusted his targets upward for Royal Caribbean (NYSE:RCL) by 77% and Norwegian Cruise (NYSE:NCLH) by 40%.

Weighing in on Carnival, he adjusted his target upwards by 47% from $15 to $22 per share. The news capped a good week for CCL stock, which shot up more than 17%. Yet it should be stressed that the revised targets for all three stocks do not bring them out of hold territory just yet.

In fact, 13 of 19 Wall Street analysts still call Carnival a hold, with two a buy, one an underperform and three a sell. Meanwhile, fourth quarter earnings forecasts call for losses of $1.88 per share, a slight improvement over the $2.19 loss Carnival reported in the previous quarter.

Cruise Line Cautions

I’ve been quite the Donnie Downer these past few months when it comes to CCL stock. Indeed, the absolute uncertainty as to when if ever a Covid-19 vaccine would arrive spelled trouble to me. Leaping back into cruise line investments meant anything but smooth sailing, what with Carnival and its rivals in a race to bail out the ship before it sank under the weight of debt.

And while the current enthusiasm over a vaccine has had a positive impact on cruise investments, I’m going to warn here against expecting too much from CCL stock for three reasons. First, it’s unwise to count on a public that wants to get past Covid-19 as fast as possible to return to the scene of the crime. Cruise ships, if you’ll remember back nine months, were the first and most publicized springboards for the disease in the United States and worldwide.

Second, Covid-19 poses the greatest threat to a key demographic that cruise lines work hard to attract: those of retirement age. Given a wide range of vacation options in a post-pandemic world, many may simply choose to rule out cruises if for no other reason that they’ll never quite feel relaxed — which is just the point of getting on board a luxury liner in the first place.

Expect a Short Carnival Party

Finally, CCL stock was never much of a performer to begin with. Anyone who looks back over the long range will see that share prices rose maybe 5% between January 2000 and January 2020, before the pandemic hit. In between, though, there have been many peaks and valleys and that to me is where things get interesting. Really interesting.

I don’t see any reason to doubt that at least in 2021, CCL stock will see some heady gains. If so, it will likely result from bargain hunters betting on an overall leisure travel play. There’s some wisdom in that, as I don’t see analysts getting granular enough to rule cruise lines out for now. Nor do hard realities need to set in for the time being — not if the nation breathes a huge sigh of relief in 2021 and endeavors to will things back to how they were at the start of 2020.

The longer term question will of course center on whether people return to cruising as a way of recreational life. If they don’t, that’s bad news for Carnival and if they do, there’s no reason based on past performance to expect CCL stock will flood portfolios in a sea of green. Not in the long term, anyway. The smart money, I think, rides on catching the wave of post-Covid 19 market enthusiasm: so long as we can still see it building to a carnival-worthy crest.

On the date of publication, Lou Carlozo held long positions in PFE, BNTX and MRNA.

Article printed from InvestorPlace Media,

©2021 InvestorPlace Media, LLC