Carnival Stock Has Potential But the Storm Is Still Raging

Tuesday, markets rallied 2%, yet Carnival Cruises (NYSE:CCL) stock fell 0.5%. This does not bode well for CCL stock going into 2022. However this was not a specific problem to it, as the whole sector suffered. The latest Omicron jitters wobbled investor psyche.

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

Nevertheless, I have faith in the fans of cruising and the company stocks too.

The pandemic disrupted all businesses on a global scale. However, the companies who need crowds suffered more than others. Specifically the cruise lines have the toughest predicament. They are dealing with it, but there are giant storms to wade through before clear sailing.

CCL stock is in danger from a bearish technical pattern. Once CCL stock lost $20 per share, it may have triggered sellers with bad intentions. Luckily the bulls have support just below current price to help stave the slide. Beyond that, the stock is still on its path to recovery from last year’s disaster. Similarly, the company is also on the mend but far from healthy.

Carnival Cruises (CCL) Stock Chart Showing Support and Resistance Lines
Source: Charts by TradingView

In case you missed it, my tone has concern but I am pulling for it. In the long run, CCL should recover its Wall Street legs. Meanwhile, management has a tall task trying to normalize the business.

Meanwhile, it’s not been a picnic for investors. Since the summer, the stock lost more than 40% of its value. It wasn’t alone since Royal Caribbean (NYSE:RCL) and Norwegian Cruises (NYSE:NCLH) also suffered.

Investors Are on Edge

The emergence of new virus uncertainties may have contributed to this. Plus, the whole stock market had a tizzy last week. Luckily, the omicron version of the virus so far seems comparatively benign. Vaccines from say Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) are probably still effective. Only time will tell if we will move past this crisis in 2022. And therein lies the overhang concerns in CCL stock and its cohort.

Management so far has survived the Covid-19 disaster but they are still on life support. It is hard to instill confidence on Wall Street if you can’t land the sales on Main street. I was optimistic ABOUT CCL stock over a year ago when I suggested upside opportunity. My specific message was of opportunity at $20 and support below $14 per share. Those proved perfect levels because the bulls used them to soar into summer highs.

Now CCL stock fell back into the neckline from back then. The bulls are fighting to reestablish it as footing. The same risks still face Carnival as cruising has not yet gone back to normal. They can rebuild but there are no guarantees. Mutations are unpredictable therefore this sector will have headline risk for a long while. Perhaps of all the travel and leisure stocks, cruises are most vulnerable to disruptions.

CCL Stock Fans Have Conviction

My conclusion is that fans of CCL can hold it long term but with a speculative twist. We cannot call it safe until years from now. Even then, the emotional scars from this great pandemic will linger. Investors in CCL must accept higher levels of risk than normal. I trust they are up to it because of how emotional they are about their stock.

Usually I reserve a special discussion about the company’s fundamental metrics. In this case it’s futile to do so because they are still murky from the pandemic. Last 12 months revenues are 1/30th those of two years ago. Clearly it would be unfair to judge investments from those. The bigger problem is that they are also losing $9 billion in the process.

Management so far has succeeded in bridging the gap. But any extension of revenue recovery would put the company in jeopardy again. In other words, Carnival just doesn’t have a lot of room for error. This goes the same for the entire industry. They have a huge overhead and they need sales to survive.

When the uncertainties are this unusual, investors should keep the risk size modest. The idea is to set up the opportunity to participate but not being all in. For some reason this sector draws high emotions, which leaves us vulnerable to rash actions.

On the date of publication, Nicolas Chahine 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.

Nicolas Chahine is the managing director of SellSpreads.com.


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