When Catastrophe Creates Opportunity

The wreck of Carnival's (NYSE: CCL  ) Costa Concordia cruise ship off the Italian coast raises a number of questions.

The most perplexing of these -- not to mention comedic, if the accident weren't so tragic -- is what in the world its captain was thinking as he hastened to abandon ship while thousands of passengers remained on board. According to his account, the whole thing happened rather by accident: "I tripped and ended up in one of the lifeboats. That's why I was in there."

Talk about epic fail.

For savvy investors, however, the question is whether the headline risk from the accident has created a buying opportunity akin to BP (NYSE: BP  ) following the Deepwater Horizon catastrophe or News Corp. (Nasdaq: NWS  ) following the revelation of its phone-hacking scandal, as Carnival's stock price took a deep dive shortly after the news of the accident broke.

To cut to the chase, I don't think it has.

The decline in its stock price isn't anywhere near the declines suffered by the companies associated with either of these other events. In the months after the oil spill, the stock prices of BP; Transocean (NYSE: RIG  ) , the rig's owner and operator; and Halliburton (NYSE: HAL  ) , an oil-field-services provider working on the platform, fell by 55%, 54%, and 37%, respectively. And in the months following the phone hacking scandal, News Corp.'s stock fell by 17%, going from $16.97 down to $14.01.

Company

Pre-Headline Risk Stock Price

Post-Headline Risk Stock Price

Decline

BP $60.48 $27.02 55%
Transocean $92.03 $42.58 54%
Halliburton $33.31 $21.15 37%
News Corp. $16.97 $14.01 17%
Carnival $34.28 $29.60 14%

Source: Yahoo! Finance.

On the other hand, as you can see in the table above, Carnival's stock price fell by only 14%, and it's now trading at a mere 8% below the pre-wreck price of $34.28.

For the enterprising investor, in turn, these numbers suggest that the meager opportunity to profit from this event has largely evaporated -- much like the ship captain's hopes for finding gainful employment in the future.

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Fool contributor John Maxfield does not have a financial position in any of the companies list above. The Motley Fool owns shares of Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2012, at 5:48 PM, voelkels wrote:

    BP’s well blew out at approximately 10 PM on April 20, 2010. I sold my shares of BP on May 10, 2010, 19 days after the news of the blowout was released, for $48.98/share. The cruise ship Costa Concordia ran aground eleven days ago and, so far, CCL has only lost around 14 % of its pre-accident value. If, however, a storm brews up and causes a major spill of the ship’s fuel supply, the stock’s value will decline much more, IMHO.

    C.J.V. - not ready to buy CCL stock yet, me

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