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Stock Market News: Cruise Stocks Bulls Make Their Case

By Dan Caplinger – May 15, 2020 at 11:50AM

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The stock market fell Friday morning, but hard-hit cruise operators bucked the downtrend.

The stock market fell Friday morning, reversing course following an impressive rebound late Thursday. The most recent economic data shows considerable weakness in the U.S. economy, with the retail sector seeing one of the biggest hits lately. Retail sales dropped by more than 16% in April, a record decline and much worse than the 12% that most economists had anticipated. As of just after 11 a.m. EDT, the Dow Jones Industrial Average (^DJI -1.71%) was down 235 points to 23,390. The S&P 500 (^GSPC -1.51%) fell 30 points to 2,823, and the Nasdaq Composite (^IXIC -1.51%) dropped 97 points to 8,849.

The prospects for local reopenings are good for ailing retailers, but for cruise ship stocks, challenges linger on. Facing an ongoing no-sail order and concerns about how the industry will be able to adapt to post-coronavirus realities, Royal Caribbean (RCL -13.15%), Norwegian Cruise Line Holdings (NCLH -18.04%), and Carnival (CCL -23.25%) have all faced major declines in 2020 as their very existence has been called into question. However, the three cruise ship stocks were higher by as much as 4% and 6% earlier this morning, with bullish investors making their case that the companies are doing what it takes to get the job done.

Will cruise fans return to the seas?

One of the biggest fears about cruise ship companies is that they won't be able to find a way to return to normal operations as long as there are any worries about COVID-19 or other health concerns. Cruise operators have suffered from several high-profile outbreaks in the past, and that's led to congressional inquiries into what cruise operators are doing to address health issues.

White cruise ship with colors painted on side at sea, making a right turn.

Image source: Norwegian Cruise Line Holdings.

Yet at least for now, cruise fans aren't losing hope that they'll be able to set sail eventually. Norwegian is just the latest company to report on bookings, and despite its having had to cancel sailings over the next several months, Norwegian's advance picture for 2021 looks close to normal. That's the same thing that Carnival and Royal Caribbean have said, due at least in part to generous provisions for cancellations and rebookings in the event that the pandemic lingers longer than most hope.

Whatever it takes

Investors are also happy to see cruise ship operators preparing financially for whatever may come. Royal Caribbean, Carnival, and Norwegian have now all taken steps to boost their liquidity levels, raising debt and selling new shares of stock in order to put more capital at their disposal.

Some industry watchers worry about the high cost of capital that cruise ship operators are paying in order to get the money they need. Admittedly, high interest rates will make it more difficult for companies to achieve positive cash flow even when things get back to normal, while new share issuance will dilute any resulting gains for shareholders.

There's still plenty of uncertainty in the cruise industry, and unless a permanent solution like a vaccine becomes available, shareholders in Carnival, Royal Caribbean, and Norwegian will have to get used to volatility in both directions. However, if things start going right, there's definitely a chance that the three cruise giants will survive the coronavirus crisis and eventually return to the former levels of prosperity that these unique sea transportation stocks enjoyed in the past.

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

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$37.90 (-13.15%) $-5.74
Carnival Corporation Stock Quote
Carnival Corporation
$7.03 (-23.25%) $-2.13
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$11.36 (-18.04%) $-2.50
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,575.62 (-1.51%) $-161.89

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

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