In 2020, cruise line operator Royal Caribbean (NYSE:RCL) has served as an emblem of the fiscal damage caused by the novel coronavirus, particularly on the consumer discretionary sector. Thus, the spread of Covid-19 has put tremendous pressure on RCL stock.
Unfortunately, some RCL shareholders were shaken out of their long positions at the worst possible time. On the other hand, patient investors are starting to see signs of life in RCL stock.
Indeed, some folks might consider RCL to be the ultimate “vaccine stock.” That’s because the public is much more likely to book trips on crowded cruise ships when they’re confident that Covid-19 is under control. And this, of course, chiefly depends on the availability of an approved, safe and effective vaccine.
Consequently, current and prospective RCL stock holders should monitor the developments on the Covid-19 vaccine front. However, they should also look for signs that Royal Caribbean has enough available capital to withstand the economic headwinds as the world awaits a vaccine.
A Closer Look at RCL Stock
The price action of RCL stock in November has been highly encouraging. Suffice it to say that RCL has come a long way since it bottomed out at $19.25 in March.
In fact, RCL stock managed to breach the important $80 resistance level on Nov. 24. This is significant because the bulls attempted to break through that level in June but failed.
Now they have a second chance, and it’s crucial that the RCL stock bulls maintain $80. The next key level to watch is $100, which might be achieved before the year is over.
I wouldn’t be too ambitious in the short term, however. Some bulls might expect RCL stock to reclaim the pre-pandemic short-term high of $135.32. This price should be viewed as a long-term goal, not a realistic near-term objective.
Shrugging Off the Warning
Interestingly, RCL traders weren’t deterred from buying the stock in November even as the Centers for Disease Control (CDC) issued a warning about the spread of Covid-19.
Specifically, the CDC raised its warning for cruise travel from level 3 to level 4. With that, the CDC recommended that “all people avoid travel on cruise ships, including river cruises, worldwide, because the risk of COVID-19 on cruise ships is very high.”
One might expect a massive sell-off in RCL stock due to the CDC’s warning. Yet, this didn’t happen. Amazingly, the trading community shrugged off the warning, which is great for the bulls as RCL’s resilience is surely a positive sign.
Perhaps investors realized that the CDC’s warning won’t likely have an immediate effect on the cruise line industry. J.P. Morgan analyst Brandt Montour observed that “the bulk of operator marketing efforts and ultimate 2021 capacity are now concentrated in” 2021’s second half, “which is less likely to be impacted.”
Waiting for the Vaccine
The most obvious reason for RCL shareholders’ resilience, however, is the encouraging recent news on the Covid-19 vaccine front.
In particular, drugmakers Pfizer (NYSE:PFE) and Germany-based BioNTech SE (NASDAQ:BNTX) announced the discovery of a 95% effective Covid-19 vaccine candidate. Plus, Moderna (NASDAQ:MRNA) declared that its vaccine candidate is 94.5% effective in preventing Covid-19.
RCL stock traders celebrated these announcements. However, this leads us to a crucial question. Is Royal Caribbean sufficiently capitalized to stay afloat while the world awaits an approved coronavirus vaccine?
Thankfully, the answer would probably be yes. Not long ago, Royal Caribbean reported that the company has $3 billion in cash as well as $700 million in short-term loan commitments.
Not only that, but Royal Caribbean plans to issue $500 million worth of new stock along with $500 million in senior convertible notes with a due date of 2023. So, that ought to help keep the ship on steady waters for a while.
The Bottom Line
There’s certainly no guarantee that the uptick in RCL stock will persist. For all we know, it might be a head-fake instead of a bona fide turnaround.
With positive vaccine news and a solid capital position, however, it’s entirely possible that Royal Caribbean can turn the ship around in 2021.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
