Are cruise stocks a good investment as we emerge from the pandemic?

By Kirsteen Mackay

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Cruise stocks have been recovering as the vaccine rollout takes shape and vacation bookings rise. Are these a good investment as the world emerges?

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The world is finally emerging from the dark days of Covid-19 with a renewed sense of optimism. As the vaccine is successfully rolling out around the globe and the sun shines, will cruise stocks recover and the depressed appetite for vacations rise once more?

The travel industry certainly hopes so, and it’s focussing its efforts on ways of enticing people back, the sooner the better.

Cruise stocks have been hard hit

As the pandemic unfolded last year, Covid-19 outbreaks on cruise liners were among the most shocking stories and hardest hit places on the planet. This spelled doom and gloom for the industry and the majority of liners were unable to sail at all for the past year. Most have suspended US sailings until late spring.

But now, hope is on the horizon. For instance, Toronto Airport is introducing innovative testing procedures that should allay passenger fears. With the help of Covid-testing company Relay Medical Corp. (CSE: RELA, OTC:RYMDF) it hopes to get the economy moving again with a rapid testing solution.

Discouraging short selling activity

Cruise stocks like Carnival (NYSE: CCL), Royal Caribbean Cruises (NYSE: RCL) and Norwegian Cruise Line Holdings Ltd (NYSE: NCLH) became popular targets for short sellers over the past year. This did nothing to help the cruise stocks, but the explosion in app entrepreneurs moving the markets and Reddit army rising up against the shorts, may discourage hedge funds from continuing.

Excessive shorting activity on these high-profile targets could set them up for a short-squeeze and with increased scrutiny in this area, that’s something they want to avoid.

Cruise Stocks: Bullish sentiment mounting

On Royal Caribbean’s February earnings call it thrilled listeners when confirming booking activity for the second half of 2021 aligns with its anticipated return to cruising. This positive update sent the Royal Caribbean share price soaring to 52-week high. It’s now approaching $93, up a staggering 383% from its $19.25 52-week low.

Shareholders were greatly encouraged, not only by the increase in bookings, but the rise in pricing of cruises too. Despite holding back its marketing budget, it has realised a 30% increase in new bookings since the turn of the year, compared with November and December. This reflects pent up demand from consumers desperate to get back on vacation.

Close-up view of a huge cruise ship in the harbor of Venice, district Santa Croce. Balconies and chairs, no passengers are on board. Italy, Europe.

Cruise stock – vacation Photographer: Uta Scholl | Source: Unsplash

With the cruise ships deemed floating petri-dishes, there was real concern that holidaymakers would steer clear of cruising in the future. However, these bookings convince otherwise. People have short memories and the R&R allure of the sea is just too enticing to pass up after a desperately depressing year of staring at the same four walls.

The bullish sentiment is not just coming from retail investors and consumers. Investment Bank Macquarie Research upgraded cruise stocks to Outperform, with a note stating:

“most negative catalysts are in the rear-view mirror.”

Basing their assertions on cruise stock company valuation, Macquarie analysts Paul Golding and Charles Yu see the most upside in Norwegian Cruise Line Holdings, followed by Carnival and then Royal Caribbean Group. They upgraded these stocks from Neutral.

The analysts also wrote there is:

“an expectation of sufficient vaccine efficacy for consumers to feel comfortable engaging in leisure activities…While shares have bounced quite a way off their 1-[year] lows, and barring recession or a sector rerating, the catalysts should trend more positive from here into summer,”

Carnival shores up liquidity

Last month Carnival closed on a $3.5 billion senior unsecured debt offering. This will greatly boost its liquidity situation. The company also priced an offering for its 40.5 million shares of common stock at $25.10 adding close to $1 billion of additional capital.

Carnival’s share price hit a 52-week low of $7.80. It’s now up 252% to around $27.50. But it’s still way down from its January 2020 high of $52 a share.

5 different cruise ships docked in harbour in the Bahamas.

Cruise stocks are recovering – Photographer: Fernando Jorge | Source: Unsplash

Norwegian Cruise Line Holdings

Norwegian Cruise Line Holdings is the world’s third-largest cruise line. So far, its share price rise is in-line with competitors. The Norwegian share price is up 340% since its pandemic low.

The $9bn company also reported earnings late last month with encouraging signs of bookings.

“While overall booking volumes since the emergence of the COVID-19 global pandemic remain below historical levels, there continues to be demand for future cruise vacations. Despite reduced sales and marketing investments, and a travel agency industry that has not been at full strength for months, bookings have been strong for future periods resulting in an elongated booking window as guests book further into the future.”

Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings Ltd said:

“Looking ahead, we are encouraged by the accelerating rollout of vaccines, the progress towards herd immunity and the strong demand for future cruise vacations.”

Until the world opens up and sailing actually begins again, cruise stocks remain a risky investment. However, the bullish sentiment is encouraging and investors that enjoy risk-reward stock picking may deem this a good time to buy shares in cruise stocks.

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Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.