Hospitality businesses like Carnival Cruise (NYSE:CCL) have lost their bids on Wall Street recently. The rise in covid-19 infection is conjuring up fears of lock downs. And now the omicron variant is a new worry. With all of that said, let’s take a closer look at whether CCL stock is worth investing — or trading — in moving forward.
So far, regulators have put in place mild restrictions. For example in California we are back to having indoor mask mandates. This affects all companies that offer products that draw-in crowds, but it’s especially damaging for cruise line companies.
In fact, CCL stock has lost almost half of its value since the summer peak. This new wrinkle didn’t do it any good. For now, the approach is to trust in Carnival’s management team. They’re confident in the business. If this confidence pans out, you can bet the stock will recover … eventually.
The drop in Carnival’s stock price is not due to particular issues with its business. The resurgence of infections has hit all travel stocks hard. Other sectors suffered last week too. For example, Draftkings (NASDAQ:DKNG) took a dip as sports contest cancellations impact its profits.
Cruises need crowds for their business and they lob them into tight spaces. That puts these companies at the forefront of virus spreading fears. This also places them last in line on the recovery band wagon.
They’ve barely managed to get back on their feet, yet here they are, facing adversity again. Still, Carnival President and CEO Arnold Donald has not yet shown concern. In fact, he has touted strong demand.
For now, I will take him at his word and soldier on with the technical opportunity in CCL stock today.
CCL Stock: There Are Critical Lines to Hold
Technically, CCL stock needed to hold a $20 per share. Now it is imperative that the bulls rise above it to stave off its lower target. The pandemic low was $8 per share and that is now back within its range. I don’t forecast it goes there without more exigent circumstances. However. it is important we recognize that it is possible.
After all, the hindrance is not the fans or demand, but rather the logistics. As Donald noted, this is the primary hurdle in the company’s recovery. Cruises have to worry about restrictions along their way to their various destinations.
On the other hand, investors need favorable headlines about infection stats so Carnival shares can continue recovering. CCL has technical support at $15 per share and through $12. So there’s still hope, but the company’s fans need to step up to the plate, and they must do so quickly.
The business fundamentals will not be an asset for a pro-argument. This is where Carnival stock investors will need to muster up a bucket-full of “hopium.” Those who are long the stock should not consider adding at this point. We have gained no new information to make that a smart move. Averaging down willy-nilly means adding to investor problems.
Average Into Carnival Stock, Not Down
Investors who were looking to add bullish positions in CCL stock should consider averaging in not down. This is an important nuance, which makes a big difference.
If I only start out with a partial position, I can add some later. Adding more later on dips or new information would make a full position. Averaging down, on the other hand, makes my problem bigger with the hopes of getting out of trouble.
Options markets also allow for strategies that could build a buffer for hopeful investors. For example, selling puts instead of buying shares is one of them. Also, selling covered calls against shares would be another.
Remember, there is no foolproof method. Still, it is important that we use the tools at our disposal.
The chart for CCL stock is not clearly conducive of an entry point right here. There is resistance starting at $23 per share and it extends $5 above that. This is the type of struggle that needs a headline to punch through. Otherwise, the slog back will be difficult and requires plenty of gumption from the bulls.
Maybe Reddit investors can help it with one of their ridiculous spikes. But that’s not an investment thesis.
What Carnival Cruise stock has going for it is the love of its fans. They are hardcore both for the stock and the business. The missing ingredient is some calm waters so it can sail back into profitability for its investors.
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.
