Please ensure Javascript is enabled for purposes of website accessibility

Should I Buy, Sell, or Hold Cruise Line Stocks?

By Daniel B. Kline – Apr 15, 2020 at 9:28AM

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

Shares of Royal Caribbean, Carnival, and Norwegian have plummeted while the entire industry remains beached.

The three major cruise lines -- Carnival (CCL -23.25%), Royal Caribbean (RCL -13.15%), and Norwegian (NCLH -18.04%) -- have been shut down completely by an order from the Centers for Disease Control that bans all cruises from U.S. ports for 100 days (though it could be less than that if the public health crisis abates).

That has forced all three companies to dock their ships, lay off workers, and do everything possible to conserve cash. They have also tapped credit lines, and either raised new capital already (in the case of Carnival) or seem very likely to need to do so (Norwegian and Royal Caribbean).

A Royal Carribean ship at sea.

No cruises can leave from American ports at the moment, or for the foreseeable future. Image source: Royal Caribbean.

How deep is the sea of red ink?

It has been widely reported that Carnival, the biggest of the three cruise lines, will spend about $1 billion a month for ongoing operations and to keep its ships ready to go when it gets permission to sail again. The other two cruise lines have not given estimates, but it's very clear that significant money is going out to maintain ships, provide customer service, and issue refunds, while very little is coming in in the form of new reservations.

This has, of course, devastated the stocks of all three companies. Here's where each one stood at the market close April 14 compared to its 52-week high:

  • Carnival: $12.51 ($56.04)
  • Royal Caribbean: $37.84 ($135.32)
  • Norwegian: $12.35 ($59.78)

Those are, of course, bleak numbers -- and you have to at least consider that bankruptcies are possible. But you should also remember that all three companies were profitable before this crisis.

Should I buy, sell, or hold cruise line stocks?

If you own cruise line stocks, it likely makes sense to hold them. The damage has been done, and you probably believed in these companies before the coronavirus pandemic. If, however, you honestly believe people won't get back on ships, or see a bleak outlook for the industry, then you may want to cut your losses.

I'm personally a fan of buying -- if you understand the risks. And there are a lot of them:

  • Ships might not be allowed to sail for longer than the current 100-day closure (though that could also end up being shorter).
  • Casual customers might no longer consider cruises as a safe vacation option.
  • The CDC could recommend (or even enforce) that people over a certain age don't cruise until a vaccine has been created.
  • Limited marketing budgets could make it hard for cruise lines to win customers back.
  • Prices remain depressed due to limited demand.

It's also possible that any (or all) of the cruise lines file for Chapter 11 bankruptcy. When that happens -- and it could make sense as a strategic move -- shareholder value generally gets wiped out.

Buy cruise line stocks if you're a long-term investor who accepts that this may be a very difficult recovery. It's also important to understand that your investment could go to zero.

If you choose to buy, you should be careful and make sure cruise lines are a very small part of your portfolio. There could be value here, but it may take a very long time to unlock it.

Daniel B. Kline 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
$37.90 (-13.15%) $-5.74
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$7.03 (-23.25%) $-2.13
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$11.36 (-18.04%) $-2.50

*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
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

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.