Investors Should Buy Cruise Stocks, Including Carnival

The last time I weighed in on Carnival (NYSE:CCL), I said, “With coronavirus cases surging, Carnival stock could easily slip back to April 2020 lows.” That was on July 13, as CCL stock traded at a daily high of $16.70.

Carnival cruise (CCL) ship on the water

Source: Ruth Peterkin / Shutterstock.com

While the name never subsequently sank to its April low of $8.53, it did, amid the novel-coronavirus pandemic, pull back to $12.11. However, it appears the worst-case scenario may be priced into the stock, especially with vaccines for the coronavirus being administered.

The launch of the vaccines prompted investors to recently send the stock from its Nov. lows to a recent high of $24.38. At the moment, the stock is consolidating around $20.

Going forward, I’d like to see it break out to potentially test its $24.38 high again soon. In the longer term, I’d love to see it refill its gap around $45.

While the cruise industry’s outlook  isn’t clear just yet, it may be time to make a contrarian bet on the sector.

The CDC Created a Clear Path for a Return to Sailing

The cruise industry has been shut down since March, when the CDC ordered ships to stop sailing to U.S. ports after severe outbreaks of the coronavirus. On Oct. 30, however, the agency issued a “Framework for Conditional Sailing Order.”

Under that order, cruise companies need to follow specific steps.  They include having procedures for testing, quarantining, and isolating passengers and crews. They’ll also have to conduct mock voyages with volunteers playing passengers who get sick. But the CDC is creating a clear path for an eventual return to sailing.

However, the major cruise lines haven’t met the CDC’s requirements just yet. That’s part of the reason Carnival extended its cancellations of U.S. departures through the end of March.

There’s a Good Deal of Pent-Up Demand

It looks like many people badly want to get back out to sea.

After a nearly yearlong shutdown, cruise companies say bookings are strong for the second half of the year. In fact, according to Cruise Lines International Association (CLIA), as reported  by USA Today, 50% of those who have taken cruises before say they’ll cruise again this year.

“Our data shows that cruisers are eager to cruise again and are willing to follow stringent public health measures in order to return to sailing,” CLIA added, noting 90% of cruisers polled said they would wear masks on their voyages.

Also indicating the strength of demand for cruises, 150,000 people volunteered for a simulated trip with Royal Caribbean (NYSE:RCL).  Plus, according to a Royal Caribbean blog, the vaccine distribution is fueling optimism about the sector. In fact, consumers are reportedly booking many trips for fall 2021 and early 2022.

In addition, Macquarie Research’s Paul Golding and Charles Yu said, “We should start to see some green shots from modest and gradual efforts to bring capacity out of layup” if  the vaccine rollout accelerates and CDC guidance stays positive.

The Bottom Line on CCL Stock

While Carnival’s shares are still facing challenges in the near-term, they also have many catalysts. And the CDC is clearing a path for cruises to resume. Meanwhile, there’s plenty of pent-up demand from folks who want to get back to cruising.

Additionally, vaccines for the coronavirus are beginning to roll out, increasing optimism towards the cruise industry. Finally, the worst-case appears to be priced into the stock. In short, CCL stock may be a solid contrarian bet at its current prices.

As long as the pandemic eases, the cruise industry could get its head back above water sooner rather than later.

On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. A contributor to InvestorPlace.com, Ian Cooper has been analyzing stocks and options for web-based advisories since 1999.


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