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Why Carnival Corporation, Royal Caribbean, and Norwegian Cruise Line Stocks Surged 10% (and More) Tuesday

By Rich Smith – Updated May 27, 2020 at 8:50AM

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Memorial Day festivities prove Americans are ready to go out again.

What happened

A holiday weekend, a new week, and a new coronavirus vaccine candidate -- these three factors helped spark a new stock rally Tuesday, and cruise line stocks Carnival Corporation (CCL -19.99%), Royal Caribbean (RCL -10.91%), and Norwegian Cruise Line (NCLH -14.47%) are key beneficiaries of the optimism today.

In 1 p.m. EDT trading, shares of Norwegian Cruise Line Holdings stock are up a whopping 15.0%, with Carnival (up 12.7%) and Royal Caribbean (up 13.8%) shares not far behind.

Cruise ship at sea.

Image source: Getty Images.

So what

The Memorial Day holiday featured news stories and social media reports, too numerous to count, of crowds of people emerging from the Great Lockdown and pouring out of their homes to enjoy the start of summer. Across the country, Americans barbecued, attended outdoor concerts, and swarmed to public swimming pools and beaches.

While potentially bad news for coronavirus trackers, the stories demonstrate that people are eager to get back out and enjoy life again. This bodes well for the cruise industry once the CDC lifts its no-sail order, which is currently expected to happen in July.

Even this morning, there was news that could encourage the CDC not to extend its ban on cruises: Yet another COVID-19 vaccine trial is starting up, this time at Novavax, joining a slate of more than 120 various vaccine candidates currently in either clinical or preclinical trials. The odds hopefully favor one or more of these vaccines proving both safe and effective against SAR-CoV-19 ... eventually.

Now what

But will a vaccine arrive soon enough to save the struggling cruise industry? The earnings report out of Royal Caribbean gave new hope to investors last week that it might.

The quarterly results showed that the company, with $3.3 billion in "liquidity" and a cash burn rate of less than $275 million per month, probably has enough cash in the bank to keep itself afloat through June of next year should the no-sail order stretch out that long.

And this is key. With shares of Royal Caribbean, Carnival, and Norwegian Cruise Line down 60%, 68%, and 71%, respectively, over the past 12 months, rightly or wrongly, investors today are grading these stocks pass-fail. "Pass" means they think the stocks will survive; "fail" means they think bankruptcy is the more likely option.

Based on this weekend's news, many investors are giving all three stocks a pass and bidding up the shares accordingly.

Rich Smith 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.
$38.88 (-10.91%) $-4.76
Carnival Corporation Stock Quote
Carnival Corporation
$7.33 (-19.99%) $-1.83
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$11.86 (-14.47%) $-2.00
Novavax, Inc. Stock Quote
Novavax, Inc.
$18.95 (2.02%) $0.38

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

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