There is Light at the End of the Tunnel For Carnival Stock

Investors in Carnival Corporation (NYSE:CCL) have had a great November. Over the past month, CCL stock is up more than 70%, currently trading just over $23. However, year-to-date (YTD), the shares are still down about 54%.

Carnival (CCL) cruise ship on water in front of beach with chairs
Source: Flickr

On Oct. 8, Carnival released a trading update. It said, “as of September 20, 2020, cumulative advanced bookings for the second half of 2021 capacity currently available for sale are at the higher end of the historical range. The company believes this demonstrates the long-term potential demand for cruising.”

Given the encouraging news and the recent strength in price, market participants wonder if now would be a good time to invest in CCL stock. If you are not yet a shareholder, you may want to wait until the release of next quarterly report, expected in mid-December. Any decline below $20, especially toward $18, could offer an acceptable risk/return profile for long-term investors.

Why Cruise Stocks Have Been Rallying

CCL stock is not the only cruise company whose shares have been bringing holiday cheer to investor portfolios lately. Stock prices of three other cruises companies have also been buoyed lately. In the past month, this is how their prices have fared:

  • Lindblad Expeditions (NASDAQ:LIND) up 79%;
  • Norwegian Cruise Line (NYSE:NCLH) — up 57%;
  • Royal Caribbean (NYSE:RCL) — up 42%.

Several factors have contributed to the rally. On Oct. 30, the Centers for Disease Control and Prevention (CDC), the U.S. health body, issued a Framework for Conditional Sailing Order that outlines a plan for “the safe and responsible resumption of passenger cruises.”

This new order replaced the previous “No Sail Order,” which in effect had meant a full stop to U.S. cruise departures. In addition, the decreased possibility for international air travel across the globe, has made cruising almost impossible. Now, the CDC is ready to work with cruise lines to “so they can resume passenger operations with an emphasis on preventing the further spread of the novel coronavirus on cruise ships.”

Then November saw positive announcements by Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX), Moderna (NASDAQ:MRNA), and AstraZeneca (NASDAQ:AZN) about several Covid-19 vaccines. In fact. on Dec. 2, the U.K. became the first country to authorize the Pfizer/BioNTech Covid-19 vaccine.

Finally, the broader market seems to have put question marks around the presidential election behind it. Thus, fueled by these developments, cruise shares have been rallying. In fact, most other travel stocks have also staged remarkable rallies in November.

Should You Buy CCL Stock Now?

Cancellations and no-sail orders since March have been extremely hard on the financial health of Carnival. Cruise ships have long been vulnerable to virus outbreaks due to passengers’ close proximity. Thus, it may still be too soon to get too optimistic about full cruises sailing from U.S. ports.

However, vaccine news has brought hope to stakeholders as well as investors in the industry. Put another way, there is light at the end of the tunnel.

Yet the recent run-up in price means CCL stock’s short-term technical charts look overbought. Although a stock can stay overbought for quite some time, it would be prudent to exercise caution.

A fall below $20, toward $18 looks likely. Such a short-term decline would give potential investors a better margin of safety.

If you are a Carnival shareholder, you could consider taking some of your paper profits. Alternatively, you may want to hedge your long CCL stock position with a covered call that expires on Jan 15. It would offer a degree of downside protection while allowing you to participate in a potential up move in Carnival shares.

Those investors who are not ready to commit capital to CCL stock fully may instead consider buying an exchange-traded fund (ETF) that has Carnival as a holding. Examples include the Invesco S&P 500 High Beta ETF (NYSEARCA:SPHB), the SoFi 50 ETF (NYSEARCA:SFYF), or the SPDR Global Dow ETF (NYSEARCA:DGT). 

Finally, those investors who believe travel shares may continue to do well in the coming quarters could also consider researching the ETFMG Travel Tech ETF (NYSEARCA:AWAY), the Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA:PEJ), or the U.S. Global Jets ETF (NYSEARCA:JETS).

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

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. 

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