Updated: Aug 19, 2020
The stock market has been on quite a roller coaster ride this year. We have seen record one-day and one-week performances in both directions in just a matter of a few months. We've seen some of the highest profile investors such as Warren Buffett (Airline Stocks) https://finance.yahoo.com/video/warren-buffett-why-sold-entire-231758482.html and Carl Icahn (Hertz) https://www.bloomberg.com/news/articles/2020-05-27/icahn-files-13d-a-on-hertz selling major positions for billion dollar losses.
We've also witnessed Saudi Arabia's Sovereign Wealth Fund take an 8.2% stake in Carnival Cruise Line (CCL) after the stock was down 80% from a year ago. And while the airlines can fall back on the federal government for support to the tune of $25 billion https://www.nytimes.com/2020/04/14/business/coronavirus-airlines-bailout-treasury-department.html, the cruise line companies have had to go to the markets to find sufficient liquidity to get through a zero revenue situation (Covid-19). And each of the three big cruise line companies Royal Caribbean Cruises (RCL) https://www.seatrade-cruise.com/news/rcl-swings-q1-loss-covid-19-impact-liquidity-bolstered-33bn, Norwegian Cruise Line Holdings (NCLH) https://www.travelpulse.com/news/cruise/nclh-successfully-secures-more-than-2-billion-of-additional-liquidity.html and Carnival Corp. (CCL) https://www.yahoo.com/news/carnival-trend-higher-strong-liquidity-104517739.html) have found ways to create liquidity. And if you've been paying attention, you noticed that a board member of CCL Randall Weisenburger recently purchased an additional 1.25 million shares of CCL at $8.00 per share. https://investorplace.com/2020/04/insider-buying-news-carnival-board-member-buys-ccl-stock/
I have spent quite a bit of time evaluating the travel/hospitality industry, since it has been clobbered more than any other industry by the Coronavirus. From airlines, hotels, casinos to cruise liners. Here are some of the things I've considered......
1 - Do I believe the stock has been oversold and there is a long way to go to get back to a fair valuation?
2 - Is there is a steep barrier to entry into the industry, so no one can just pop up and grab a ton of market share?
3 - If/when this virus situation settles down and eventually goes away (big if) what kind of revenue can the company turn out?
The last question is the key for me. Since the cruise liners had to go to the markets to either sell equity stakes or debt instruments at a rather steep cost 11.5% coupon for CCL https://www.fool.com/investing/2020/04/01/carnival-boosts-its-bond-offering-after-a-red-hot.aspx, 12.575% for NCLH https://www.bloomberg.com/news/articles/2020-05-05/norwegian-cruise-seeks-2-billion-financing-to-shore-up-cash and around 9 - 10 % for RCL https://www.bloomberg.com/news/articles/2020-05-05/norwegian-cruise-seeks-2-billion-financing-to-shore-up-cash, when things get back to normal or the new normal, will these companies generate the revenue to cover their debt?
At the end of the day, each investor has to decide for themselves..... Do you feel lucky? Well do ya PUNK? But seriously, you have to decide what is a reasonable risk for your personal investment style, risk tolerance, time horizon, etc.
I believe the cruise liners have created sufficient liquidity to stave off any more talk of bankruptcy, and with the stocks well off their highs from a year ago (CCL closed at $17.44, with the 52 week high of $53.71, NCLH closed at $17.25, with a 52 week high of $59.78 and RCL closed at $54.51 with a 52 week high of $135.32), I am very bullish on all three of the major cruise liners.
For full disclosure, I recently held a position in NCLH and plan to hold a position in NCLH in the near future. I currently own call options on CCL and have recently owned shares in CCL. I plan to continue to own shares and/or call options in NCLH and or CCL for the foreseeable future.
Please understand the risks involved in buying stocks or options before doing so. Also, make sure you are comfortable with the possibility of losing most or all of your investment if things go the wrong way. Past performances of investments have no correlation to future outcomes.
This is not a solicitation. This article is meant only as an expression of my viewpoints based on my own personal research. Neither myself nor Carrano Financial Services makes any claims that any companies mentioned in this article will produce positive returns.