Wall Street is Back In Love With Cruise Stocks

For anyone who was brave enough to step in and pick up shares of some cruise stocks back in Q1, there have been very juicy profits to be had. For instance, the likes of Royal Carribean (NYSE: RCL) and Norwegian Cruise Line (NYSE: NCLH) are up 139% and 66% respectively from the multi-year lows seen in March. Carnival (NYSE: CCL) is the underperformer of the bunch but is still up 20% but still trending north.

It wasn’t all easy going however and for a while many were expecting to see $0 prints and bankruptcy headlines. In hindsight, the cruise stocks were among the first canaries in the goldmine when it came to the effect COVID-19 was going to have on equities. Reports of coronavirus outbreaks onboard various ships and ports around the world turning them away made for alarming reading.

By the last week of January, all three of the main cruise names had turned down from prices that they haven’t seen since. It would take about another month for that panic and fear to fully permeate the market, with the likes of Apple (NASDAQ: AAPL) setting all-time highs all the way through the middle of February. By that stage though, the cruise stocks were shedding double digit percentage figures on a weekly basis and there wasn’t a less attractive industry out there. Still, they were able to steady the proverbial ship towards the end of March however and the 6 months since then have been about convincing Wall Street and investors that they’ll eventually be able to return to winning ways.

Recovery Potential

As they continue to make last quarter’s lows seem irrational, even while consolidating a long way below where they traded pre-COVID, there are solid uptrends forming and plenty of reasons for the long term investor to consider a position.

The big thing is that most of the uncertainty that was present at the onset of the pandemic has been removed and we’ve seen the world’s economy adapt surprisingly quickly. While it may be a while yet before we return to something close to the old normal, not that much has really changed. Consumers have simply started doing more of their shopping online, tech stocks have proven their resilience to non-tech specific concerns and people still like to take vacations.

Norwegian’s CEO Frank Del Rio and Royal Carribean’s Richard Fain both spoke to this latter point last week. In speaking with CNBC, Del Rio said that all things considered, bookings are solid and that "pricing has held up well. No one is discounting the product, rightfully so. And so we're hopeful that 2021 can be an OK year. It won't be a record year by any means, but it certainly won’t be the disaster that 2020 has been".

Fain mirrored his cautiously bullish comments when he said  "bookings in general have been much better than I think anybody expected, particularly as we get into the year, and people feel more and more confident that we'll be able to be putting the coronavirus more and more into the rear-view mirror". 

Recent Upgrades

Also last week, Barclays turned bullish on the sector overall and upgraded the three heavyweights to Overweight. In a note to clients, analyst Felicia Hendrix said "while chances are high (in our view) that the CDC extends the date again (likely into 4Q20), we believe the comments from the agency will be positive and could signal a near-term return to cruise".

Compared to the 8% of consumers who said they would be comfortable traveling in April, that number is now 36%, a post COVID high as tracked every month by UBS. US ports remain closed but there has been a resumption of cruises leaving European ports. To be sure, it will be a different kind of experience but that seems to be par for the course with COVID’s effect on our economy overall; same, same, but a little different.