Pandemic Worries May Still Haunt Carnival Stock

In a development that surprised no one, when the novel coronavirus began spreading across the world, the cruise ship industry was one of the hardest hit. No matter how you look at it, these big boats are floating Petri dishes. Further, Carnival (NYSE:CCL) suffered badly due to the Diamond Princess disaster. However, a recent burst of enthusiasm toward Carnival stock may tempt you to reconsider its narrative.

carnival cruise (CCL) ship on the water
Source: Ruth Peterkin /

Since the beginning of this month, CCL shares have gained nearly 7%. Over the same period, we have seen a sharp correction in the technology sector, resulting in the S&P 500 index shedding nearly 4%. But it’s not just trading sentiment that’s pushing the divide between Carnival stock and the rest of Wall Street. Instead, the return of international cruises offers a critical litmus test for the industry.

As Business Insider reported, Carnival subsidiary Costa Cruises, which is based in Italy, resumed operations this past weekend. Though the one-week itinerary, which includes trip to the country’s southern ports, is limited to Italian guests, it will hopefully prove that the industry can safely operate.

Just as importantly, Costa Cruises did confirm by logical deduction that demand exists for such excursions. Therefore, investors jumped on Carnival stock on the basis that the worst is behind the underlying company.

Certainly, the signs are encouraging. Back home, a surprisingly robust August jobs report buoys the case for Carnival stock. The people who have money want to spend it. Moreover, Americans have been cooped up at home, ready to release their pent-up demand.

As I’ve stated in prior stories regarding CCL stock, I’m optimistic about the long run. But for now, the picture remains murky.

Consumer Fears May Still Linger for Carnival Stock

Although the resumption of international cruises offers a solid confidence boost, you must consider the context. For instance, while the Italians suffered badly from the novel coronavirus, they have also recovered relatively quickly. That’s not the case with the U.S., where we have struggled to manage the pandemic.

Therefore, I would caution against making too many assumptions about this test run. Yes, it’s significant but we’ve had completely different outcomes.

Further, you can make a case that consumer fear is still strong regarding the cruise ship industry. Unlike other forms of transportation, cruise ships are exclusively vacation platforms. You don’t have to go on a cruise if you don’t. Also, the industry tends to attract an older demographic that is more vulnerable to Covid-19.

Interestingly, I noticed a strong correlation between the year-to-date performance of Carnival stock versus the performance of the S&P 500 in the months before and after the Sept. 11 attack. In both cases, market value dropped significantly before bouncing higher from the bottom.

CCL stock YTD vs. S&P 500 before and after 9/11
Click to Enlarge
Source: Matt McCall Research Team

The question for Carnival stock is whether the present rally is a dead-cat bounce or not. Judging by recent news, it’s tempting to take a shot at CCL while it’s still at a relative discount. However, we saw a similar trend play out with the S&P index following 9/11. The stock market bounced higher, attempting to move to new plateaus. Unfortunately, it eventually cratered as economic and consumer fears took over.

As a microcosm, I can see the same narrative developing for Carnival stock. Again, the underlying company offers a discretionary service. It may take some time before consumers willingly go on a cruise ship. After all, it took many years for people to feel comfortable flying after 9/11.

A Mitigated Experience Will Not Be Fun for Vacationers

Another factor that makes me hesitant on Carnival stock is the safety guidelines that the company must impose. It’s not just the number of guests that must be limited. Rather, the entire experience will feel stifling and controlled.

Adding to that concern, vacationers will always have the lingering thought that someone could be carrying the infectious disease. If that were to happen, we’re all too familiar with that nightmare scenario watching the news. For many would-be buyers, they might just take a pass when they’ve had some time to think about their purchase.

Of course, at some point, the fears regarding cruise ships will fade. But for now, the smart bet is to keep CCL stock docked on the shore. Likely, there will be better discounts over the horizon.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2021 InvestorPlace Media, LLC