By now, people are starting to get sick of omicron, not just because it’s the latest variant of concern of the novel coronavirus but also because of its implications. Suddenly, this once-innocuous letter from the Greek alphabet — number 15 if you’re curious — now represents a potential headwind to the travel recovery story. As a result, we have a number of stocks to watch.
To be absolutely clear, we still don’t know much about the omicron variant. But what we do know from limited observation and, in some cases, anecdotal evidence, is a basic set of characteristics of omicron infection. For instance, the new strain appears to be highly transmissible, imposing a massive problem for travel-related stocks to watch. After a strong global push, the last thing any country wants is another infectious wave.
Adding to general concerns is the weather. As we enter the winter season, experts are warning that we should prepare for a long and cold one. That’s not exactly the most helpful condition for a pandemic, especially with the devastation we saw from the cold snap in February. One of the few positives of this latest twist in the crisis is that demand for vaccines increased, which may mitigate damage to some stocks to watch.
But that’s not the only piece of encouraging news. Again, we just don’t know much about the omicron variant, so it’s not useful to speculate. With the limited data that we have, we’re yet to see serious diseases or death stemming from the strain. Therefore, it’s important not to panic, but rather to assess travel-related stocks to watch with thoughtful vigilance.
Most importantly, this issue isn’t just about health risks, but anticipation of such. Frankly, it doesn’t matter what you or I think about the omicron variant. If the market as a whole perceives serious threats, then we must respect that viewpoint because it’s the one that most influences price. With that, here are some stocks to watch carefully.
- Carnival (NYSE:CCL)
- Norwegian Cruise Line (NYSE:NCLH)
- iShares MSCI EAFE Small Cap ETF (NASDAQ:SCZ)
- United Airlines (NASDAQ:UAL)
- Southwest Airlines (NYSE:LUV)
- Boeing (NYSE:BA)
- Avis Budget Group (NASDAQ:CAR)
In my research and analysis of retail revenge, it became abundantly clear to me that a great many Americans are simply tired of the restrictions that the pandemic has imposed. Therefore, it’s always possible that the volatility travel-related investments incurred may be a temporary blip. To reiterate, this is not about buying or selling, but rather stocks to watch to gauge future trades.
Travel Stocks to Watch: Carnival (CCL)
With the unfortunate development of the omicron variant, Carnival fundamentally appears to be back at square one. You’ll recall that about a year ago, a Diamond Princess cruise ship — which is under the Carnival umbrella — became the poster child of the Covid-19 crisis when passengers and crew came down with the disease.
Of course, the poster-child label could have happened to any cruise ship operator. To be sure, none of the major publicly owned companies in this space have fared well since the start of the crisis. In Carnival’s case, shares showed much promise following the April 2020 doldrums, when they were trading hands in the single digits.
More recently, however, CCL is on the list for stocks to watch — and I’m afraid for not great reasons. Not only has the trailing week been rough for the company, the equity unit over a trailing-month basis from the Dec. 7 close has lost 25%.
For me, the issue to monitor is to whom cruise ships cater. Since older folks tend to have more comorbidities, a highly infectious disease could spell problems, even if omicron is less potent.
Norwegian Cruise Line (NCLH)
While Carnival was sadly the face of the coronavirus pandemic in its early months, Norwegian Cruise Line risks its own PR troubles regarding the omicron variant. According to News 18, an India-based news channel in partnership with CNN, 10 people onboard a Norwegian cruise ship approaching New Orleans tested positive for Covid-19.
What’s worrisome for all involved is that over 3,200 people are onboard the affected ship, according to Louisiana Department of Health officials. Per News 18, anyone who tests positive during the disembarking process will either go directly home or self-isolate, with accommodations provided by the cruise ship operator.
Now, I don’t want to speculate because the report doesn’t clearly specify whether the 10 are infected with the omicron variant or some other strain. But if the high transmissibility evidence is to be believed, that’s going to put a spotlight on how the Louisiana government — and Norwegian itself — handles this red-hot situation.
Any misstep here may result in terrible PR damage. Therefore, Norwegian represents one of the stocks to watch, if only as an additional piece of evidence regarding omicron.
Travel Stocks to Watch: iShares MSCI EAFE Small Cap ETF (SCZ)
While we’re on the subject of stocks to watch among cruise ship operators, it’s only fair to consider the companies that make them. For probably most American investors, Fincantieri — currently among the holdings of the iShares MSCI EAFE Small Cap ETF — is not a name you’d immediately recognize. However, this Italian shipbuilding company is one of the underlying industry’s biggest, building many of the cruise ships that you’ve probably sailed on.
Before you make a decision on travel-related investments, you should add SCZ to your list of stocks to watch. Of course, the ETF features plenty of holdings under its belt and Fincantieri is but one name among several. This is an underhanded way of saying you should monitor the equity unit’s performance where it’s traded in the Borsa Italiana, the nation’s stock exchange.
If investors don’t view the omicron threat as a long-term headwind, Fincantieri could put on a relatively decent performance. On the other hand, if they see this variant as problematic for the global economy (especially relating to travel), shares will probably not look too hot.
United Airlines (UAL)
In the professional realm, it’s quite possible that the airline industry has been hurt the most from the pandemic. First, you have the countless number of employees that represent the broader air travel sector, many of whom lost their jobs during the initial wave of Covid-19. Then, as people started flying the friendly skies again, a vituperative air clouded the recovery.
Air rage has now become its own pandemic, adding stress to an already difficult (and many times thankless) job. Given this backdrop, I’m not at all surprised that United Airlines tumbled badly over the trailing week ending Dec. 3. And while I hope UAL bounces back from this latest turmoil, the market is sending a worrisome message.
Since hitting a low in July of this year, UAL has slowly been building technical support. Don’t get me wrong — shares were quite choppy. Still, it was encouraging to see a rising support line.
Well, the latest fallout sees UAL drop well below this rising support, which places it on this list of stocks to watch carefully. If positive momentum doesn’t arrive soon, this could get ugly.
Travel Stocks to Watch: Southwest Airlines (LUV)
One of the more intriguing stocks to watch, as it relates to travel demand, is Southwest Airlines. Like any other company in the industry, Southwest has been devastated from the coronavirus pandemic. But aside from the recent omicron headwind, the global health crisis appeared to be waning — or at least the threat of it. Theoretically, then, LUV should swing higher based on the positive implications.
So far, the results have been mixed. On a year-to-date basis, LUV is almost down 2% below breakeven, which is frustrating. Yes, on one hand, this performance compares favorably to many other airliners. However, the concept of retail revenge isn’t just about buying stuff. Rather, it signals that people miss the social experiences that make us human. Part of that is reconnecting with family.
Because Southwest specializes in discount fare, it’s admittedly disappointing that shares aren’t in the black for the year. Now, the equity unit faces the same technical threat that other airliners do, if not more so. Basically, LUV has been inside a downtrend since June of this year and omicron threatens to do more damage unless positive momentum takes over quickly.
Under the same idea of mentioning Fincantieri earlier, investors should add Boeing to their list of stocks to watch. As before, this isn’t about picking winners and losers within the travel industry. Instead, it’s all about gauging long-term market sentiment. If the smart money only views omicron as a short-term threat, then perhaps the volatility in Boeing will fade away.
On the flipside, if omicron realizes the worst fears of infectious disease experts, then we might need to brace ourselves for a crash landing. As you know, Boeing is one of those companies that carried baggage heading into the Covid-19 crisis; namely, the software defects in the 737 Max 8 jetliner. Add the pandemic to the mix and you have a truly combustible situation.
Unfortunately, so much about the future trajectory of BA shares remains outside Boeing’s sphere of influence. The airliners themselves have suffered steep losses. While air travel has put on an impressive recovery, the key metrics are not near where they need to be for prospective investors to feel an abundance of confidence.
Travel Stocks to Watch: Avis Budget Group (CAR)
If the air travel industry can’t spark a quick recovery to its bout of red ink, you’ll need to include Avis Budget Group in your list of stocks to watch. Obviously, car rental firms are direct beneficiaries of the airliners. Without an abundance of passengers, it’d be extremely difficult for Avis and similar outfits to keep the lights on.
At the same time, the pandemic also delivers an optimistic factor to the narrative. Given the possible infectiousness of the omicron variant, people might not be too eager to hail a ride-sharing service. Heck, even the drivers themselves might start thinking of a different side hustle. Thus, for the folks that absolutely must travel, renting a car once they arrive at their destination should be more appealing.
Also, some folks might prefer to rent a vehicle for their road travels to avoid putting the mileage on their vehicles. As a side note, with how valuable used cars are, fewer miles could mean much more of a premium than ever before. So, analyzing CAR shares might provide a nuanced picture regarding broader travel sentiment in the age of omicron.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.