Why I’m Interested in Cruise Stocks?
They’ve Gone South for a While, Where Will They Go Next?
Since March of 2020, travel and hospitality have been some of the worst hit sectors.
Earlier this year, in May 2020, it made some news when Warren Buffet’s Berkshire Hathaway pulled out of all their four airline stocks, even at a loss.
These included Delta Airlines (NYSE: DAL), American Airlines (NASDAQ: AAL), SouthWest Airlines (NYSE: LUV) and United Airlines (NYSE: UAL). He held 9 to11% in each of these before shedding them all.
Cruise ships have also suffered a similar fate. They’ve been dumped in the face of ongoing uncertainty and are cruising at rock bottom at the time of writing this.
‘We will not fund a company … where we think that it is going to chew up money in the future.’ — Warren Buffet
How Low Have The Gone?
Airline Stocks
With travel coming to a screeching halt in many parts of the world, as the stay-at-home stocks surged, these stocks took a nose dive. Let’s see the same four stocks for an example.
At the time of writing this (29 September 2020), American Airlines (NASDAQ: AAL) and United Airlines (NASDAQ: UAL) were both down to a third of their prices from January 2020. Delta (NYSE:DAL) was trading at 50% of its price when compared to the start of the year while Southwest Airlines (NYSE: LUV) had suffered similar fate, albeit a little less than 50%.
Cruise Stocks
The picture is equally grim for these. Stocks such as Carnival Corporation & Plc (CCL), Norwegian Cruise Line Holdings Limited (NYSE: NCL), Royal Caribbean Cruises Ltd (NYSE:RCL), have dropped significantly in comparison to their prices at the start of the 2020.
Norwegian Cruise Line Holdings Ltd (NYSE: NCLH) has lost almost 75% of it’s value this year.
With COVID-19 impacting travel and hospitality in the way that it has, it’s commendable that they’ve managed to stay afloat.
Caribbean raised billions just to make it to the other side of the pandemic and the question now is, where next?
While both sectors are somewhat correlated, for the purposes of today, we’ll explore only cruise stocks. I’ll explain why.
A Closer Look at Cruise Companies
There are some key questions for investors.
First, at a time like this when it’s virtually impossible to predict what’s coming next, and there are fears of subsequent lockdowns, is it a good idea to be investing in the cruise companies at all?
If yes, then is there an inflection point?
While these stocks definitely carry risk, there’s hope to suggest that this might be the end of their downturn.
Of course, there continues to be a fear of second and third waves, but again, we all have views on how severe those may be — and its very important to only ever trade your own views. So please use my article only for ideas. Do your own research and make your own decisions.
Given that these stocks are trading at 50% to 33% of their value at the start of the year, it would be reasonable to expect that recovery could be strong. But the question is, when is the right entry point?
First, Are They Investible at All?
From everything I see and sense, companies that have come this far, will make it through the pandemic.
While these stocks are selling at bargain prices now, let’s not forget that they’ve survived thus far.
The current travel ban can’t be forever and so yes, in my view, they’re investible.
I mean ask around.
- Would you or your friends like to go on a cruise holiday ever again?
- Have you stored those credit notes from the cancellations that you may have been subject to, and are you beginning to wonder when you might be able to use them?
If the answer is yes, then I rest my case.
Two, When Is the Right Time?
I believe that you can’t always time the market a 100% accurately and frankly, I don’t waste my time trying.
We could spend an extra several hours trying to speculate if today is better than tomorrow, but personally, I prefer to see some strong signs and work from there.
If you invest for the long-term as I do, then a small downturn before the upturn isn’t the end of the world. I find that these things balance out over time and the added anxiety simply isn’t worth it. So we be smart with our money, but also our time and our mental health.
If I’m sat on the right train, I don’t mind if it moves a few steps back before it goes forward.
Back to stocks and the signals, I see two key signs that pique my interest in cruise stocks as of now.
There’s Not Too Much More to Lose on the Down Side
One, with the stocks having lost so much, they really don’t have much more to lose on the downside. The pandemic has now been around for over six months, and with that in mind, I feel that all those who’d have wanted to exit their positions, have had sufficient time to do so. So it’s my belief that the next big move will be made by the buyers, the bulls, the believers.
The CDC Announcement Offers Hope
Two, the CDC announcement. Cruise Ships have been subject to a no sail order from the Centers for Disease Control and Prevention (CDC) until 30 September 2020, which at the morning of writing is tomorrow. Here’s a shot from their announcement made in July 2020.
I do feel somewhat optimistic about the next announcement and there are reasons.
Given the economic downturn, signs of COVID-19 fatigue and the looming US elections, I sense that the CDC will offer something more specific.
If not a clear go ahead, then something more tangible to look forward to. Above all, hope.
For the investor in me, that’s something worth hanging my hat over.
But then, that’s just my view. Stocks that are so low and lacking in clear signs of a turnaround, aren’t for everyone and we all need to find our comfort zone when it comes to investing. Some of us prefer to stick with industries we fully know and understand, while others venture into lesser known lands so long as we do our research. I’m of the latter set of people and you need to decide which feels right for you.
If cruise ship stocks aren’t for you, then you might like to see some other themes that I’ve explored recently.
Other Themes Worth Exploring
I’ve explored other themes in recent articles and these still remain relevant.
There are ideas surrounding stocks that have benefitted from the recent pet boom and may continue to do so, some other ideas surrounding the US election and yet others surrounding space travel. Here below are some of my related articles.
Feel free to browse as per your own interest areas.
Parting Note
Often we go seeking the next ten-bagger and yet somehow, we notice them only after they have rallied hard, by which time, we feel that the stocks are simply too expensive and then we begin hunting again.
The way to break this cycle is to always keep looking for the next big idea and get small stakes to begin with. Also, never put all eggs in one basket and stay diversified.
Finally, please let me remind you that I’m not an investment advisor. I work in finance, have studied trading at the Lex van Dam Trading Academy, and manage my own stocks portfolio which I’ve grown from £200 to a six figure value.
Last year, I also created my own course on Udemy called ‘Invest in a Heartbeat, Simple Steps to a Stocks Portfolio.’ This course contains three hours of video where I explain how to begin with basics and explain my own thinking patterns in a framework I’ve called BEAT, which stands for Basics, Environment, Aim and Trade. The course now has 117 students and some amazing feedback over over 95%.
My articles are for information only so please do make sure you do your own research before purchasing any stocks.
If you wish to connect, please find me on LinkedIn where I also share shorter pieces including day-to-day thoughts and ideas.
