Call it a light at the end of the tunnel, or a new dawn rising on the horizon. Whatever you call it, cruise ship stocks are racing to catch it today. The stocks are much higher in the afternoon trading (the S&P 500, for example, is up 5.7%), but the share of cruise passengers Carnival Corp (NYSE: CCL), Royal caribbean (NYSE: RCL), and Norwegian Cruise Line (NYSE: NCLH) leave the rest of the market in their wake, up 25.3%, 18.4% and 18.3% respectively at 1:45 pm. EDT.
You can probably thank Saudi Arabia for that.
But first, the macroeconomic news. In Europe, we are starting to hear rumors of a drop in the death rate from COVID-19 infections in Italy and Spain. In the United States, Vice President Pence speaks of “glimmers of progress” in his efforts to slow the spread of the new coronavirus, while President Trump says he sees a “light at the end of the tunnel.”
All this news has led investors to believe that the crisis, although it is not yet over, could at least to have an end. This is why stocks are up today – but why are cruise lines stocks much higher than average?
Today, it was reported that the Saudi Arabian sovereign wealth fund had purchased an 8.2% interest in Carnival Corp. The fact that at least one investor does not think cruise lines are condemned – at least not this one – seems to be spreading to benefit other actions in the industry, and therefore if Carnival is naturally the action that benefits In addition to this title, shares of rival cruise operators Royal Caribbean and Norwegian Cruise are also enjoying solid gains.
Will the momentum last? With Carnival stocks still down 84% in the past year, Royal Caribbean down more than 79% and Norwegian Cruise suffering an even bigger drop of 85%, one might be forgiven for thinking that there has a lot of advantages to these actions right now. After all, when evaluated on trailing profits, Carnival stocks only sell twice what investors might think it could gain when things get back to “normal”, while Norway and Royal Caribbean is not much more expensive at 2.2 times and 2.9 times. 2019 results, respectively.
Granted, given the recession this industry is heading into, it is unlikely all of these companies will make a profit this year. The hope, however, is that 2021 (and beyond) will look much more like 2019 than 2020, in terms of profits.
Of course, before that happens, cruise lines will have to convince travelers that it is safe to sail on their cruise ships. Volunteers?