Please ensure Javascript is enabled for purposes of website accessibility

Why Carnival Corp, Royal Caribbean, and Norwegian Cruise Line Stocks Are Surging Full-Speed Ahead Monday

By Rich Smith – Apr 6, 2020 at 2:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Saudi Arabia to the rescue?

What happened

Call it a light at the end of the tunnel, or a new dawn breaking on the horizon. Whatever you call it, cruise line stocks are racing to catch it today. Stocks are broadly higher in afternoon trading (the S&P 500, for example, is up 5.7%), but shares of cruise lines Carnival Corp (CCL 6.62%), Royal Caribbean (RCL 3.56%), and Norwegian Cruise Line (NCLH 4.87%) are leaving the rest of the market in their wakes, up 25.3%, 18.4%, and 18.3%, respectively as of 1:45 p.m. EDT.

You can probably thank Saudi Arabia for that.

Collage showing a cruise ship, a man in a face mask and a microbe

Image source: Getty Images.

So what

But first, the macroeconomic news. In Europe, we're beginning to hear rumors of a decline in the fatality rate of COVID-19 infections in Italy and Spain. And in the U.S., Vice President Pence is talking up "glimmers of progress" in efforts to slow the spread of the novel coronavirus, while President Trump says he sees a "light at the end of the tunnel."  

All of this news has stock investors ebullient that the crisis, while not at an end yet, may at least have an end. That's why stocks are up broadly today -- but why are cruise line stocks up so much more than average?

Today it was reported that Saudi Arabia's sovereign wealth fund has purchased an 8.2% stake in Carnival Corp. The fact that at least one investor doesn't think cruise lines are doomed -- at least not this one -- appears to be spilling over to benefit other stocks in the industry, and so while Carnival is naturally the stock benefiting most from this headline, shares of rival cruise operators Royal Caribbean and Norwegian Cruise are enjoying strong gains as well.  

Now what

Will the momentum last? With shares of Carnival stock still down 84% over the past year, Royal Caribbean down more than 79%, and Norwegian Cruise suffering an even bigger 85% drop, one could be forgiven for thinking there's an awful lot of upside to these shares right now. After all, when valued on trailing earnings, Carnival stock is selling for just two times what investors might presume it could earn when things get back to "normal," while Norwegian and Royal Caribbean aren't much more expensive at 2.2 times and 2.9 times 2019 earnings, respectively.

Granted, given the recession this industry is heading into, it's unlikely any of these companies are going to earn a profit this year. The hope, though, is that 2021 (and subsequent years) will look a lot more like 2019 than 2020, earnings-wise.

Of course, before that happens, the cruise lines are going to have to convince travelers that it's safe to sail on their cruise ships. Any volunteers?

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$47.39 (3.56%) $1.63
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$9.83 (6.62%) $0.61
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$14.64 (4.87%) $0.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.