Over the past few months, I’ve supported the comeback narrative of Carnival (NYSE:CCL) and the cruise ship industry. At some point, CCL stock will make for a tremendous discounted opportunity. At the same time, you must look at reality. That means you should wait out the storm before pulling the trigger on Carnival.
For all the talk about a recovery in this sector, it’s becoming clear that it mostly hinges on a factor we can’t control: the spread of the novel coronavirus.
As recent events have proven, this pandemic, while it’s still brewing, is incredibly unpredictable. Yes, at some point, this crisis will fade away — they all do. But for CCL stock, its dependency on that fading — or a vaccine — makes the present situation treacherous.
Indeed, the crisis reached a magnitude that it caused President Trump to change his tone to a more somber one. It’s not just voters that need to pay attention to this but investors. Cases and hospitalizations are rising, resulting in higher incidences of people ultimately succumbing to Covid-19. It’s not a great time to go vacationing on the high seas and thus, not the best time to buy Carnival’s stock.
Like I said, patience is the key here. For the time being, here are three reasons to avoid jumping aboard CCL.
CCL Stock Is Stymied by “Pointless” Travel
Unlike airliners such as JetBlue Airways (NASDAQ:JBLU), cruise ships don’t have the luxury of multiple demand channels. For instance, with JetBlue, the company can pull demand from personal travel, travel involving necessities (i.e., weddings, graduations, etc.), and business trips (especially when that segment comes back in full force).
In other words, JetBlue can capitalize on wants, needs and business. This is one of the reasons why I’m bullish on JBLU stock. However, with CCL stock, you’re mostly limiting yourself to wants: no one needs to go on a cruise ship and I don’t think sea travel is the next business revolution.
Again, those wants will come back at some point. But until they do, the stock risks volatility.
This also brings up the issue of a diminished vacation experience. Even assuming a generous discount on paper, why pay for a mitigated vacation? Call me crazy but I think the point about a vacation is to get away from the stress, not to be at a potential epicenter for it.
Competitors Can Steal Market Share from Carnival
Another headwind impacting Carnival stock is the rise of competitors. In this case, I’m not talking about industry rivals like Royal Caribbean Cruises (NYSE:RCL) or Norwegian Cruise Line (NYSE:NCLH). Instead, I’m referring to companies from other vacation platforms, particularly recreational vehicles.
Initially, the rise of RVs doesn’t appear intuitive. With a pandemic swirling and people fearing an economic crisis, going for a road trip doesn’t seem appealing. However, the need for vacationing and recharging the batteries has also never been stronger.
Plus, think of the advantages of RVs and camping. At any point, you can socially distance yourself from others. In the outdoors, you should be much better protected than in close, cramped quarters with potentially asymptomatic people.
Fortuitously, the Covid-19 crisis may help lift the RV industry toward another leg higher. With reduced traffic and fewer crowded areas, there has never been a better time to experience the outdoors. That’s great news for RV-based investments, but not so much for CCL stock in the interim.
What Happens If Things Go Awry?
If you could tie one event to the early devastation that Carnival stock experienced, it would be the Diamond Princess disaster. Floating off the coast of Japan while passengers quarantined under extreme anxiety, what was supposed to be a vacation of a lifetime turned into a nightmare.
Following this devastating incident, several other cruise ships encountered a similar fate. Overall, it took a very long time for cruise ship passengers and employees to be repatriated. Some never returned home alive.
I don’t mention these things to be an alarmist. Rather, you know that if you’re thinking about it, so are prospective vacationers. With a pandemic still raging, it’s also not an unreasonable concern.
Further, it doesn’t take a genius to realize that people don’t want to be stuck in a port away from home, let alone in a foreign country. We already have enough headaches as it is. There’s no reason to add more. Thus, would-be passengers will likely stay put and that means CCL stock isn’t a great buy right now.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.