It might surprise some of you but I’m not always looking at the technologies of tomorrow. Like any good investor, I enjoy betting on good companies that have found themselves in troubled waters. And with Carnival (NYSE:CCL), that description is quite literal. But while CCL stock tempts me, I’ve got to stick with my guns and focus on the fundamentals.
Simply, the basic narrative isn’t at all favorable. Perhaps one day, shares will distinctly become a bargain value play. Prior to the novel coronavirus pandemic, CCL enjoyed the backdrop of a robust economy and the strongest bull market on record. Eventually, we’ll return to those days. For now, though, this crisis weighs heavily on Carnival stock.
First, the cruise liner industry suffered a huge PR setback. Early in the pandemic, the stricken Diamond Princess became the very public face of the coronavirus. Thousands of people, including many Americans, desperately pleaded with their government to have them return home. Later, other cruise ships found themselves in similar plights, with few countries willing to let them dock and risk infections.
Second, the coronavirus is again rearing its ugly head. Recently, new daily cases have hit record highs, many of them resulting in hospitalizations. This resurgence has caused several states to pause or reverse their economic reopening. Further, Dr. Anthony Fauci testified before a Senate committee that new cases could skyrocket to 100,000 a day.
Judging from reactions in the blogosphere, I can tell that’s not what people want to hear. Instead, they want to reclaim their lives. I can appreciate this sentiment. Nevertheless, you want to be careful about names like Carnival stock, which suffer disproportionately from risks of perception.
CCL Stock Must Wade Through Too Many Obstacles
If you’ve browsed through the internet, you’re likely to come across heated debate between keyboard warriors about the genuineness of rising Covid-19 cases. But as an investor, you’re not really keying in on whether case numbers are exaggerated or not. Rather, you’re concerned about what general society believes is the truth.
In this case, I think it’s safer to assume that most Americans are taking Covid-19 seriously. For instance, we’ve seen a remarkable adoption of face masks, something that’s not native to our culture. Also, demand for air travel is very deflated relative to year-ago levels.
At the latest count, air passenger volume is only about a quarter of what we’re seeing last year. Certainly, this is a big improvement from the April lows. However, it’s nowhere near sustainable for the industry. That so many people are choosing to avoid flights suggests that many are refusing to fly due to Covid-19 fears. And that’s not what you want to see for Carnival stock.
As a cruise ship, this form of transportation has only one purpose – vacationing. While this is important, so is not getting sick, especially if you have pre-existing health conditions.
Of course, that’s a major concern for many cruise ship passengers. According to the Florida-Caribbean Cruise Association in 2011, the average age of a cruiser was 50 years. In a more recent survey by the Cruise Lines International Association Global Passenger Report, the average age was 46.7 years – likely due to their young children. However, the median age was between 60 to 69 years.
Frankly, this resurgence of the coronavirus could keep out most demographics. For example, parents don’t want to subject their children to quarantine, especially in a foreign country. And older passengers don’t want to die a horrible death.
A Question of Value
Earlier, I mentioned that Carnival stock could one day represent great value. That’s not hard to believe because eventually, this pandemic will fade. Plus, social distancing will fade too, but may linger a lot longer than the virus itself.
And this brings up an interesting question about value from the customer’s perspective. Will a cruise ship aficionado fork over thousands of dollars for a heavily mitigated experience?
Eventually, cruise ship operators must come face-to-face with this inquiry. While they can give discounts to entice demand, the reality of their situation dictates full pricing but for a compromised experience.
Indeed, their situation is worse than that of American Airlines (NASDAQ:AAL) or United Airlines (NASDAQ:UAL). For instance, they can “abandon” their social distancing protocols because air travel represents a mix of vacationing, business, and necessities. But with cruise ships, everyone aboard is doing so for pleasure. Thus, it’s much easier for this group of passengers to say no.
This leaves CCL in a bit of a pickle. Until they figure this dilemma out, I’d stay away from Carnival stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.